Oil prices that have been wafting in a sea of economic uncertainty rocketed yesterday on reports of an Israeli rocket attack that killed a top Hamas military leader. Fears that this could “open up the gates of hell” as Hamas has promised, sent traders looking for some upside protection. Israel says that the attack was in response to the fact that Palestinian militants have been using this area in the Gaza Strip as a base to fire rockets which they have been doing in recent days. Oil traders feared that the conflict could draw in others such as Egypt and could put at risk ship traffic along the Suez Canal. The UN Security Council held an emergency meeting at the request of Egypt and Morocco but it was unclear whether it will calm down the situation.
Yet after an initial spike oil prices settled down and the focus turned away from geopolitical turmoil and back to economic doom. So the market has at least one reason to rally with increasing odds that we may be closer to a bottom. Products spiked on a Bloomberg report that Motiva had a power failure at Convent and it triggered an unit outage. That came out around the same time as the Gaza story broke.
Bloomberg also reported TransCanada Corp. has declared a force majeure for oil shipments on the Keystone pipeline because of power restrictions, according to a person with knowledge of the situation.
Germany, France and Italy had better than expected GDP figures which could also help oil from a risk perspective. RTT news reported that the euro climbed against other major currencies as better-than-expected gross domestic product data from Germany, France and Italy prompted investors to seek the European currency. The latest figures from the statistical office Insee revealed that the French economy expanded 0.2% quarter-on-quarters in the third quarter, compared to economists’ forecasts for a zero growth. The German economy expanded for the third straight quarter, with GDP up 0.2% sequentially versus economists forecast for a 0.1% expansion. In Italy, gross domestic product decreased 0.2% quarter-on-quarter in the third quarter, slower than the 0.5% fall economists expected. In the euro area, gross domestic product slipped to 0.1% in the third quarter from a decline of 0.2% a quarter ago.
Spain should urgently seek an emergency aid, European Central Bank Governing Council member Luc Coene was quoted as saying by Belgian daily De Standaard today. Coene, who also heads Belgium's central bank, expressed concern over the Spanish economy as the country's 10-year bond yields have climbed back to around 6% in recent days. Erasing early Asian session's low, the euro advanced to 1.2774 against the greenback from yesterday's close of 1.2736. If the euro gains further, it may break 1.28 level. Against the pound, the euro firmed to more than a 2-week high of 0.8067 before paring gains slightly. The euro-pound pair closed Wednesday's deals at 0.8041. U.K. retail sales volume declined 0.8 percent month-on-month in October, reversing last month's 0.5 percent rise, the Office for National Statistics reported today. It was forecast to fall 0.1 percent in October. Sales excluding automotive fuel were down 0.7 percent after increasing 0.5 percent a month ago.
The American Petroleum Institute report, which was released a day later due to the holiday, was also supportive. Crude stocks increased by a less than expected 1.3 million barrels. Gas stocks were also supportive as they fell by 103,000 barrels and distillate up only 184,000 barrels. Today we get both the petroleum and natural gas reports from the Energy Information Administration.
What happens if you can’t twist again like you did last summer? You just buy bonds outright. The Fed twisted it as far as they could go and are out of short end paper so now to get through the cliff hanging and the Greek drama, it is time to buy the long end straight up! Fed minutes by minute! No wonder the long end has been on fire!
Obama is negotiating to reach a deficit-reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts, the so-called fiscal cliff. The dollar was little changed against a six-currency basket including the euro and yen and is up 1.4% this month. Gold is still 10% higher this year as stimulus by central banks around the world boosted demand for bullion as a store of value.