Oil falls on worries fiscal cliff will not be avoided

The Fiscal Cliff Capades

The Fed opened up the flood gates printing money until the cows come home — or even better yet until the unemployment rate falls below 6.5% or until inflation goes above 2% or whatever comes first! The Fed made a historic shift towards targeting a 3% inflation rate and a target jobless rate making it clear to the market when they will have to act. Yet despite this bullish stance, based upon where we are now the enthusiasm was dampened as we continue to see fiscal cliff fist-a-cuffs between the Democrats and Republicans and a dire warning from none other than the man who defined fiscal cliff in the first place — Fed Chairman Ben Bernanke. “If the fiscal cliff was allowed to occur and certainly if it were sustained for any period, it could have a very negative effect on hiring, jobs, wages, economic activity, investment and of course, the consequences of that would be felt by everybody.”

Yes that means even you gold bulls and bears. After a big jump we fell on worries that the cliff will not be avoided. The deflationary concerns and slowing economy concerns are filtering over to China. The Chinese’s benchmark fell putting downward pressure on metals and on oil. The other meeting in Vienna that no one seemed to care much about came out with an expected outcome. OPEC left their quota in place and failed to agree on a new Secretary General, a position that has about as much power as a U.S. vice-president. 

The EIA also weighed on oil sentiment as we saw a much larger than expected increase in crude supply. While I predicted a build, this was even larger than I was expecting. The EIA reported that crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.8 million barrels from the previous week. At 372.6 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 5.0 million barrels last week and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week, distillate fuel inventories increased by 3.0 million barrels last week but remained well below the lower limit of the average range for this time of year.

The roundup of other markets, cotton has been strong on ideas that China may import about 500,000 bales more than expected. This comes as world stocks are close to an all-time high. The feeders and cattle have been rocketing higher as rancher put the least amount of cattle on feed in history. OJ has been juiced up on a USDA forecast. The Wall Street Journal reported “on Tuesday, federal forecasters said the crop in Florida, the top U.S. citrus grower, would produce 146 million 90-pound boxes of oranges in the current season, which began Oct. 1. The estimate was down 5.2% from the previous forecast in October, largely due to losses caused by fruit dropping from the trees ahead of the harvest. Orange droppage "is projected to be highest since the 1969-1970 season," the U.S. Department of Agriculture said Tuesday in its report. The USDA's statistics service said the comparison excludes output during strong hurricane seasons in the mid-2000s. Industry observers in Florida said citrus greening is partly responsible for the droppage. Citrus greening is a bacterial disease that attacks trees and stunts orange growth.

In the Midwest the drought continues to give corn a boost. The strongest of the grain complex is meal. In India according to the Economic Times exports of soybean meal during November 2012 was 5,17,104 tons as compared to 4,56,244 tons in November, 2011 showing an increase by 13.3% over the same period of last year, according to the Soybean Processors association of India (SOPA).On a financial year basis, the export during April'2012 to November'2012 is 14,05,232 metric ton as compared to 18,19,690 metric ton in the same period of previous year. Rough Rice has been moving on reports that Chinese demand is expected to increase four-fold.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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