Stimulus from China vs. concerns about Europe is creating a tug-o-war across the commodity complex. China’s central bank moved to drive down interest rates by selling $26 billion in seven-day notes and another $16.15 billion in 28-day notes to try to give the market a bit of a jolt. The problem is that their efforts were offset by the lack of progress surrounding a proposed Spanish bailout and the overall prospects for the Eurozone.
The International Monetary Fund cut its growth forecast for Greece and Spain as well as the emerging markets and says the global risks of serious global slowdown is alarmingly high, which is not a pleasant prospect for oil bulls. The other fear is that Spain won’t ask for a bailout and that Europe will move head first into their own version of a fiscal cliff as animosity and ego may get in the way of the latest EU Band Aid.
European Central Bank head Mario Draghi says he has the answer and he is urging the rest of Europe to create a common bank bailout fund. Without it Mr. Draghi says that the entire European economy might be at risk and may not survive a Lehman like moment.
WTI oil prices also seem to be losing their relationship to the Brent crude as Middle East tensions are heating up. Not only are Turkey and Syria going at it, it was reported by CNN that Palestinian militants claimed to have fired 20 mortar rounds from Gaza into Israel in retaliation for a strike that wounded 11 people. The Israel Defense Force said Sunday's strike targeted two members of a Gaza-based jihad network who were suspected in a June attack that left an Israeli soldier dead. The Wall Street Journal reports that the U.S. benchmark grade hit the biggest discount versus European futures in almost a year. West Texas Intermediate crude gained as much as 1.1% after sliding 2.6% in the prior two days and reaching technical support levels. The contract’s discount to London- traded Brent oil closed at $22.49 yesterday, the widest gap since Oct. 20, 2011.
California is dreaming and their nightmare might almost be over! Bloomberg News reported that the premium for California-blend gasoline, or Carbob, fell by more than half after Governor Jerry Brown directed state regulators to let refineries make winter blend fuel.
The premium for California-blend gasoline in Los Angeles vs. futures on the New York Mercantile Exchange, lost 42.5 cents to 37.5 cents at 1:36 p.m. in New York, according to data compiled by Bloomberg. The same fuel in San Francisco slumped 42.5 cents to 30.5 cents a gallon above futures.
California-grade, or CARB, diesel in Los Angeles fell 4.75 cents to 11 cents a gallon higher than heating oil futures on the Nymex. The fuel in San Francisco dropped 5 cents to a premium of 11.5 cents a gallon versus futures. Conventional, 87-octane gasoline in Portland, Oregon, lost 7.5 cents to 27.5 cents a gallon against gasoline futures.