With German business confidence faltering in the aftermath of weak economic data, the once economic strength of the Euro-zone is faltering. Oil prices are coming off their lowest levels of the year, the U.S. stock market is soaring and the perception that the Eurozone will have no choice but to lower rates so perhaps they'll have to take even more aggressive steps to breathe life into their faltering economy.
But it is not just Europe! The sell-off that we saw in gold and oil was a wakeup call to the G-20 and other global central bankers that the risk of falling back into deflation is high unless they start ramping up the printing presses. Confidence is faltering and it is clear from the G-20 that the plan they have is to print and print and then print again.
And with oil that is all we have. Demand expectations have been falling. The Global Oil demand outlook would continue to decline as oil inventories begin to rise. U.S. oil supply is expected to rise to another 22-year high in today's Energy Information Administration report yet the American Petroleum Institute reported a small decrease in supply.
So for oil, remember you can't fight the Fed or even the ECB and you can't outlast the guys who can print the cash. But really from a technical standpoint, the oil market was probably ready to bottom anyway.
Now the return of the Big Motiva refinery put downward pressure on RBOB, continuing the sell-off that we predicted. While gas may rebound, the abundance of U.S. crude and changing U.S. demand patterns mean, as I have said before, that we are at a the end of an era of high gasoline prices. Yet if oil can continue its rebound, we might be able to eke out a rally.
So much for the summer rally! The Energy Information Administration reported that this year's gasoline price increase was one of the smallest price increases the last ten years. RBOB futures have responded, defying the calendar and the anti-speculator crowd. Poor Congress! What are they going to do when they can't call for an investigation on rising gas prices? They won't even know it's spring! Where are the oil speculator critics! Why are they not calling for an investigation of falling gas prices? Why don't those folks that said that oil would be $30 then $40 then $50 then $60 then $70 then $80 a barrel if the speculators were dealt with start screaming. And if the speculators are not a factor, then why does oil not fall to what they said was a fair price for oil.
Maybe it is time for them to acknowledge that in the oil market speculators did not drive the market but were driven to the market by the fundamentals. Fundamentals that some critics said had nothing to do with the price movement like central bank policy but now always use these factors in their analysis.
The China growth deniers that said around the year 2000 that China was not the reason for oil going up but those darn speculators, or blaming oil speculators for monetizing oil then accepting dollars for oil in return. Let's investigate why the critics of speculation got is so wrong. Let's call them in front of Congress and have them explain why gas prices are falling while the speculators are still out there. Let's have them explain how prices can fall while they are trading ETF's and electronic trading? Besides it will keep Congress occupied from doing something else like raising more taxes and spending more money they don't have.
The natural gas is still correcting a bit, coming down closer to the lower end of the uptrend channel. Still the best performing commodity of the year may get support from more cold weather.
Yet of course it is not only the front end of gas that is garnering attention. It is the back end. As we have said before natural gas is still the best play in the Commodity Space! Even Goldman says it is a safe haven. We think so too. And while a rising crude market and a lot of easing may not really help the rally over the long run, it will not hurt its upward prospects. Long term money printing is inflationary and that will help the longer end of natural gas at some point. If you are looking for an uptick in inflation, look at natural gas 5 - 10 years out that is wildly cheap compared to the front end. Forget gold as an inflation hedge - maybe it should be Natural Gas! Ok, maybe both!