Oil pauses to digest Cyprus after bull move

Slip Cyprus Away

Oil prices as well as other markets are riding the wave of emotions as the markets try to figure out if the Cyprus bailout is a good or bad thing. Bailouts are bullish and the market acted accordingly but not when you start to think that in the future your account security is based on the whims of the regulators and the stability of the banks and your money may be frozen for days as they try to decide how much cash they should take out of your account. We will relive the Cyprus nightmare over and over again or at least that is the impression that the head of the Eurogroup of EU finance leader Jeroen Dijsselbloem gave when he said that the Cyprus bailout would be used as a template for other bailouts. In other words larger depositors and bond holders will be required to fund future bailouts. So why in heavens names would you keep anything of substance in a European bank.

Yet The New York Times reports that actually just maybe this won't be the model. "The Cyprus bailout "was the solution to a problem that had become desperate,” Benoît Coeuré, a Frenchman and a member of the ECB.'s governing council, told Europe 1 radio. "Cyprus was in bankruptcy, hat is something that doesn't exist anywhere else in the euro zone.” "The situation was so unique that it needed a unique solution,” he added. "But I don't see any reason to employ the same methods elsewhere.”

The uncertainty played out in the Brent versus WTI spread as it closed to the tightest level in months as the perception of demand growth in the U.S. is far outweighing the uncertainty in Europe. The market also is reacting to the fact that the Seaway pipeline as well as other modes of transport is starting to cut into the glut of oil in Cushing Oklahoma.

So for oil it appears that the seasonal bottom is getting more solid and it appears that the products are falling. Cheaper Brent and the increasing flow of WTI oil will continue to pressure the Brent-WTI spread, perhaps changing the relationship between WTI and products. Instead of moving in tandem we may see them move in opposite directions.

Oil may get a boost from the fact that China will cut gasoline and diesel prices by 310 yuan a metric ton and CNY300/ton respectively, effective Wednesday, the National Development and Reform Commission said Tuesday.  This represents decreases of 3.2% and 3.4% over current average gasoline and diesel retail ceiling benchmarks of CNY9, 630 and CNY8, 810, respectively, according to Dow Jones Newswires calculations. The exact price ceiling varies by geographic location. The NDRC last adjusted gasoline and diesel prices on Feb.25, raising them by CNY300 and CNY290, respectively, to reflect rising international oil prices. China will also shorten the adjustment period for fuel prices to 10 working days from 22, the NDRC said in a statement. Under previous oil-product pricing system, domestic fuel prices may be adjusted when the moving average of a basket of international crude changes more than 4% over a period of 22 working days.  The NDRC said it will also scrap the 4% trigger point under the new.

Nat gas can't stay above $4.00 bucks leading some to call for a top. Still with the cold weather and the funds piling in I would not call the top just yet.  Look for a draw of 70 bcf.

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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