Bulls out for summer! Bulls out for summer! No More QE, No more QE .The summer solstice brings in more uncertainty in the market place. As the Fed starts the great exodus from QE the market has to get ready for the great unwind. Volatility is back and the bulls are no longer going to get a free ride bought and paid for by our friends at the Federal Reserve. Add to that the fears of a China meltdown based on a credit freeze as the government tries to squeeze the shadow banking system but may bring down the entire banking system along with it. The problem with China is so much of their economy is in the shadows as it is and with the reversal of the hot money provided by our Fed they may see some credit freeze even more as it will be impossible to determine the credit worthiness of your trading partner. While during the height some were praising the Chinese quay controlled way of capitalism it seems that cronyism and shadow markets and currency can only get you so far.
Of course the uncertainty surrounding China and the fading Fed handout, the prospects for oil demand growth are fleeting at best. Not even word that OPEC was cutting production seemed to stop the carnage. Bloomberg Reports that "The Organization of Petroleum Exporting Countries will reduce crude shipments through early July as adequate inventory levels curb a typical seasonal increase in shipments, tanker tracker Oil Movements said. The group that supplies about 40% of the world's oil will ship 23.84 million barrels a day in the four weeks to July 6, down 20,000 a day from 23.86 million in the previous period to June 8, the researcher said in an e-mailed report. The figures exclude two of OPEC's 12 members, Angola and Ecuador. OPEC's exports, which normally climb at this time with higher gasoline demand during the northern hemisphere summer, should recover later in July, the consultant said."
Reuters News reports that "Russia's Rosneft agreed to double oil supplies China, in a deal valued at $270 billion on Friday, as the Kremlin energy champion shifts its focus to Asia from saturated and crisis-hit European markets. Rosneft will supply China with 300,000 barrels per day over 25 years starting in the second half of the decade, on top of the 300,000 bpd it already ships to the world's largest energy consumer. "The estimated value of the deal is $270 billion," Rosneft boss Igor Sechin, a powerful ally of President Vladimir Putin, told reporters in what would be one of the biggest supply deals in the history of Russia, the world's top oil producer. The speed of change in Russian export patterns has been dramatic — switching huge volumes from Europe in only five years. Russia first started supplying China by railway and then by a new pipeline while opening a Pacific port, Kozmino, in 2009. Together with supplies to Kozmino, it is already exporting around 750,000 barrels per day to Asia, or 17% of its overall exports of 4.4 million."
That is a good deal for Russia and much needed as The New York Times writes " For more than a dozen years, it has been impossible to miss Russia's soaring, often ostentatious, energy wealth — the flashiness of Moscow, the 250-foot yachts and the hundred-million-dollar penthouse apartments for the children. And the riches have hardly been confined to the private sector. Last year, when Vladimir V. Putin wanted to shore up support ahead of Election Day, the salaries of government workers jumped; military pay actually doubled. Those heady days seem to be running out, however. The great gush of oil and gas wealth that has fueled Mr. Putin's power and popularity and has raised living standards across Russia is leveling off. Foreign investors, wary of endemic corruption and an expanding government role in the economy, are hanging back, depriving the economy of essential capital.”
Fill me up with Natural Gas! Sara Kent of The Wall Street Journal writes "Natural gas is set to emerge as a significant new transportation fuel over the next five years, raising the prospect of a challenge to oil's dominance in the sector, the International Energy Agency said Thursday. Already, gas demand in road transport grew tenfold between 2000 and 2010, but cheap gas in the U.S. as a result of the boom in production of shale gas, and concerns over air pollution and oil dependency in China, could help it develop into a more mainstream fuel, the IEA said."
In its five-year gas outlook, the Paris-based energy watchdog said it expects natural gas use in road and maritime transportation to rise to 98 billion cubic meters by 2018, covering around 10% of incremental energy needs in the transport sector. According to the IEA, this shift will do more to reduce the medium-term growth in oil demand than both biofuels and electric cars combined. "Gas is already a major fuel in power generation, but the next five years will also see it emerging as a significant transportation fuel, driven by abundant supplies as well as concerns about oil dependency and air pollution," said Maria van der Hoeven, the IEA's executive director. Several hurdles still exist that could stymie the development of natural gas as a transport fuel, not least the need to develop infrastructure like fuelling stations, the IEA said. But in several countries, notably the U.S. and China, activity is already underway to develop the sector." The Christen Science Monitor writes "The natural gas revolution is getting some wheels – and just in time for the gas industry. Rising use of natural gas in the transportation sector will offset a global slowdown in the growth of natural gas to produce electricity, according to a report released Thursday by the International Energy Agency. That timely boost will mean that America's boom in natural gas is likely to continue for several years, even if the focus begins to shift away from power plants and toward cars and trucks."
Not everyone is convinced natural gas will do for auto companies what it did for utilities. Changing fuels requires an overhaul of existing infrastructure, and natural gas comes with its own set of environmental concerns. In many regions, it is difficult for natural gas to compete with the range, power, and price of gasoline. But natural gas has already proven itself a useful alternative for fueling large vehicle fleets and it's even more attractive in parts of the world where gasoline prices are high." Reuters wrote that U.S. natural gas futures ended lower on Thursday, pressured by technical selling after three straight gains and a slightly bearish weekly inventory report despite fairly hot weather forecasts for northern tier states that should stir more demand. The U.S. Energy Information Administration reported that total domestic gas inventories rose last week by 91 billion cubic feet to 2.438 trillion cubic feet.