Crude oil fell as fears mount that Europe will fall into turmoil. Cyprus, the IMF and the European Central Bank hatched a plan to raise €5.8 billion ($7.6 billion) from taxes on depositors by raiding their accounts to save Cyprus' failing banks. The European financial crisis reemerges after the plan was announced and it makes one ask the question: If Cyprus can tap into you money on deposit and charge a tax on it, why then would you put money in their banks? What is a bigger issue is it sets a precedent that could undermine confidence across Europe.
Still with Cyprus being such a small part of the Eurozone, the fear that we could see a split up in the Eurozone makes the markets more risky. The markets are trying to put the crisis in perspective and the parliament still has to pass the plan so there is still time to protect smaller depositors and move them to safe harbor.
For oil that means a break in the recent seasonal rebound. The market is trying to remain optimistic but if we go into free fall mode, oil will falter. The dollar is finding strength against the euro and fears that euro lending will tighten, thus reducing economic activity and by default, the demand for oil. As a result the Brent crude is taking the bulk of the selling.
Of course that break should help take the pressure off of the products as well. RBOB gave back almost all of its two-day seasonal rally and heating oil is shaking off the cold and is testing the low price for the month as the EU concerns overshadow strong weather demand.
That is not the case with natural gas. Natural gas is knocking on the door of $4.00 an mmBtu as the winter weather is unrelenting. Yet we are also seeing the natural gas market get a boost from the risk-off trade as traders move to the domestic energy source and away from the global source.
I have been saying for weeks the natural gas market is one of the best plays in all of the commodity markets. The long end of the curve is of great interest as the U.S. market is making the dramatic first steps toward our emerging natural gas economy. It is clear that natural gas will be the number one fuel source in the U.S. in the next decade or two. We are hearing that directly from many companies across the U.S. and also because we are seeing the movement toward gas right in front of our eyes.
Power companies are abandoning coal like the plague. Even Obama seems more open to natural gas as a major power source despite the tax payer goodies he likes to dish out to his green energy supporters. With the nomination of Ernest Moniz to be the next U.S. Secretary of Energy we have an Energy Secretary booster of fracking. By embracing natural gas as a fuel source, it will be the fastest way for this country to reduce greenhouse gas emissions in a realistic and immediate way.