Oil prices rebound as OPEC mulls action

It's Not a Currency War! Its Deflation Fighting!

Oil prices rebounded after being oversold, increased geo-political risk associated with the fact that the U.S. is investigating whether or not Syria used chemical weapons against its own people and talk from the G2O that more stimulus is possible. With the G20 seemingly endorsing Japan's yen printing saying it was ok because Japans goal was all about fighting deflation and not a competitive devaluation. Now don't you feel better?

At the same time IMF Chief Christine Lagarde is saying that U.K. growth is not good and that the EU still has room for more stimuli. It seems that we have to be prepared for more global stimulus as the world growth numbers and falling commodity prices are signaling that things in the global economy are going south in a hurry and the actions in Japan may be followed by more money printing around the globe.

At the same time OPEC is showing more concern about the rapid drop in oil prices. Venezuelan Oil Minister Rafael Ramirez joined Iran calling for a special OPEC meeting to address the issue. While a call from the hawks for a meeting is not unusual, it seems that OPEC special meeting or not will more than likely reign in production unless prices rebound dramatically. Venezuela wants a floor of $100 basis Brent crude.

That may be tough. Robert Campbell of Reuters writes "Oil bulls are hoping that the current correction in Brent crude prices is nearing an end. Perhaps many weak hands have been pushed out of the oil complex by the selloff, but fundamental rot persists in places, suggesting all is not well. The selloff in Brent is not due to any one factor. A halt to the flow of Forties blend crude to South Korea, refinery turnarounds, a retreat from commodity markets by speculators and a host of other factors have been cited.  No doubt all these items are in play. But the selloff in Brent was preceded by a slide in the ICE gasoil crack spread, which started early this month as demand for diesel fuel and heating oil slowed in Europe.”

Bloomberg News also highlights the challenges. Moming Zhou writes that "U.S. gasoline use fell in March to the lowest level for the month in 13 years as weaker economic growth reduced demand, the American Petroleum Institute said. Gasoline deliveries, a measure of demand, dropped 2.3% from a year ago to 8.43 million barrels a day, the API said today in a report. Total petroleum consumption rose 0.6%, driven by a jump in heating oil. U.S. non-farm payrolls climbed 88,000 in March, the smallest gain in nine months, as the jobless rate stayed above 7%, a separate U.S. Labor Department report showed.    "Tepid growth and high unemployment are still burdening the economy and holding demand down,” John Felmy, the chief economist at the API, said in the report. "The recovery is a sputtering engine with a cylinder or two still not firing.” Gasoline demand in the first quarter dropped 1.7% from a year ago to 8.34 million barrels a day, the industry- funded API said.  Total oil consumption rose to 18.3 million barrels a day. Demand for high sulfur distillate fuel, used as heating oil, jumped 37 percent to 395,000 barrels a day. The increase in heating oil use was "driven by the relatively colder weather in March,” the API said. Heating degree days, a measure of demand, averaged 660 in the month, up 75%, or 283, from a year ago, according to National Weather Service.

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