Oil is sinking on demand concerns as Europe looks like it is getting more deeply mired in recession. While Germany had some growth, France is going back into recession. Overall, the Eurozone saw growth fall for the longest recession since the EU was founded. Obviously this does not bode well for oil as it will raise demand concerns not just in Europe but for one of its major goods provider China.
At the same time it does not bode well for the euro currency. With the EU in recession, the possibility for more easing is raised and the dollar will rally making crude oil that is priced in dollars cheaper. This come as OPEC is raising production. Not too bullish for prices. If we are to rebound we need to see some exceptional data out of the U.S., great but not too great as that may send the dollar even higher.
And we will have plenty of data to latch onto such as the MBA mortgage Index, the PPI, Empire State Manufacturing, and Industrial Production not to mention the Energy Information Agency weekly status report. The API reported that crude Oil Inventories rose again by 1.11 million barrels. Bearish! Distillates rose by 1.92 million barrels. Bearish! Gasoline down 480,000 barrels Supportive!
Now for the latest in the paper Brent /Forties/Ekofisk soap opera. The EU raided the offices of Royal Dutch Shell Plc and Statoil ASA and the Platts reporting agency looking into whether they were in cahoots to manipulate published prices.
Of course in the world of voluntary price reporting in the shadowy world of the Brent cash market this is going to be very interesting to prove. There have been ongoing arguments between the oil companies, cash player and the oil companies. In fact Shell actually threatened to boycott Platts and offer up their own cash price.
The moral of this story is why futures markets are so important. With speculators and hedgers providing price discovery prices are less susceptible to manipulation. This is also another nail in the coffin to the reputation of Brent crude as a global benchmark. The winner will be the most actively traded crude contract in the world — the West Texas Intermediate.