Oil prices fell as the flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 the month before as new export orders shrank in China. The oil market gave it up but is finding some support on mix of data out of Europe and the increasing likelihood that the Eurozone is going to ease up on rates. Not to mention some pretty good earnings that has allowed oil to not just crash. Italian 10-year yield fell below 4% for the first time in three years. Bloomberg reports that the rate on similar-maturity Spanish debt fell four basis points to 4.45%, also the lowest since November 2010, while the yield on Spain's two-year notes slipped as much as seven basis points to 1.89%, the least since August 2010.
Yet in Germany it is a different story. The Telegraph reported that “Private sector business activity was weak across the Eurozone in April, according to the Markit Eurozone Composite Purchasing Managers Index. The Eurozone PMI, based on interviews with purchasing managers, was 46.5 points, the same as in March. A PMI above 50 points indicates growth. Data from France showed the manufacturing and service sectors there were still shrinking, but the pace of the downturn is beginning to ease. Managers in France said they expected "a modest expansion of activity over the next 12 months.” While the downturn in France is easing, staffing levels dropped at the sharpest rate since January, with job cuts accelerating in both manufacturing and services. In France, the composite PMI – including both sectors – rose to 44.2 from 41.2 in March. In Germany the composite PMI fell to 48.8 from 50.6 in March. The surprise contraction in Germany was attributed by Markit economist Tim Moore to clients cutting spending amid concern about the economic outlook for southern Europe.”
Yet a slowdown in German PPI increases the odds of an EU rate cut. While some think it will come in June others think it may be sooner. These mixed messages are keeping oil in a very well defined range. On the high side we are looking at $89.50 and on the low side all the way back down to $85.90. While the chart seems to suggest an upward bias it still has to break out of that range.
RBOB futures have been getting a lot of press as retail prices are tanking. We of course called the top in February and we also said that we would see prices continue to fall as we headed into the summer driving season. RBOB is also trying to find a bottom around $2.6970, but with an abundance of crude the upside is limited. The up end of the range is near $2.80 and that may be tough to take out.
Natural Gas pulled back on moderating temperatures and a bout of profit taking. Yet the long term story is getting out. The New York Times reports in an article that "The natural gas boom has already upended the American power industry, displacing coal and bringing consumers cheaper electricity.
Now the trucking industry, with its millions of 18-wheelers moving products like potato chips, underarm deodorant and copy paper around the country, is taking a leap forward in switching from petroleum to cleaner-burning natural gas. And if natural gas remains cheap, consumers may benefit again…
"The economics are getting better and better to where it's less of a leap of faith than it used to be," said Kurt Kuehn, chief financial officer of U.P.S., although there is still risk because the upfront cost is so high. It still takes seven or eight years for the savings from replacing diesel with the cheaper fuel to cover that cost, he said. For many companies, that may prove too long to wait. But Clean Energy executives say that the margin between the fuel prices is so wide that the time for recouping the investment is shortening — perhaps to as little as one to three years. " A must Read in the New York Times!