Fed action could slow growth on heels of lowered China expectations

Crude oil looking at bumping against an $88 per barrel floor

Global markets are in disarray as fears that the Feds tapering operation will further slow global economic growth. Even the money printing Japanese saw a huge correction in their stock market and traders are again looking to gold as a safe haven. The gold chart, after its capitulation bottom, is reminding some of the 1975-76 market where gold fell hard only to reverse to surge to all-time highs. This comes after both the OECD and the IMF lowered economic expectations for energy hungry China. I mean when the Philippines beats you out on economic growth you might have to really reassess your outlook for oil demand growth.

Not a happy thought as OPEC gets ready to meet and leave it to the cartel to be in even more disarray than the global marketplace. With the Saudi's not willing to budge on production the lesser producers can only hope for a geopolitically fear based rally. That may be harder to come by as lower demand means more spare capacity.

Oil fell hard only to get a brief respite from Tropical Storm Barbara (not Powell) in the Pacific. The Storm raised some fears that the storm will cut across Mexico and get into the Gulf. The NHC downplayed that. Reuters did report that Barbara "The center reported that the storm was nearing hurricane strength with maximum sustained winds of 65 miles (105 km) per hour and was located about 70 miles (112 km) south of the port of Salina Cruz in southern Oaxaca state. Salina Cruz is home to Mexican state oil monopoly Pemex's largest refinery."

Add to that the stunningly bearish American Petroleum Institute report.  Huge builds across the board stunned the market! Crude oil up a whopping 4.4 million barrels and gasoline stayed off the rack and racked up a surprising 1.9 million barrel gain. Distillates also soared by a hefty 3.1 million barrels. Obviously the shale revolution continues to provide oil!

But for how long? Well the FT reports that "The oil trader known by rivals as "God" predicts the US shale revolution will only "temporarily" boost production and oil prices will remain high, siding with Saudi Arabia and the Opec cartel in a debate gripping the energy market. Andy Hall, whose lucrative bets on oil prices earned him a $100m salary at Citigroup in the 2000s, told investors that the rapid decline in output suffered by shale wells is "likely [to] mean that the bounty afforded by shale resources is temporary." He also said "Mr. Hall also revealed a bullish bet on Brent December 2015 oil futures, currently trading at $94.6. "We continue to hold our longer dated [oil] position with conviction," he said. While that is not mainstream thinking I wonder if that makes natural gas more long term bullish as well. From my understanding and experts I talked to think that Mr. Hall is wrong but assuming he is right that may be another reason to buy long dated options on oil and natural gas. Today short term we get the EKIA report and I am looking for an injection of 92 bcf. That will still leave us short of the five year average. The question for gas short term is how hot will it get? Right now we are steamy!

For oil we have said that oil is in a trading range and we tested the top now we will test the bottom that should be near the 88 range.

How about Those BLACKHAWKS!

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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