Oil reverses after Fed officials express economic optimism

Too Much Information

Do you ever get the feeling that Fed officials talk too much? The transparent Fed continues to talk and move markets desperately trying to get a handle on just when the Fed will taper. Yesterday it was New York Fed President William Dudley that reversed a multitude of markets just by suggesting he is getting more hopeful on the economy. Dovish Dudley, as I call him, is now suggesting that the fact that the U.S. economy has continued to grow at around a 2% pace in 2013 despite this quite intense fiscal restraint provides evidence.... that the private sector of the economy has largely completed its healing process and is now poised to ramp up its level of activity," he also suggested that the market is too worried about tapering and Fed Comments. Ok then maybe you should stay quiet! No such Luck, Lame duck Ben Bernanke speaks today.

Prior to Dudley comments the Brent/WTI (COMEX:CLZ13) spread was correcting. We were taking out some of the Brent risk premium. The so called “P5 plus 1” talks in Geneva with the U.S., Britain, France, Russia, China and Germany over Iran’s nuclear program is raising hopes that Iran’s oil could be back in the market at some point. The economic pressure on Iran continues to rise. According to The Wall Street Journal, Iran's national gas company said it is facing collapse, the latest sign of deepening economic distress from international sanctions as Tehran seeks urgent relief in talks with world powers.

The chief executive officer of state-owned National Iranian Gas Company, Hamid Reza Araghi, said over the weekend that the company has declared bankruptcy, according to the semiofficial Mehr news agency. The report said the company had a debt of 100 trillion rials, or about $4 billion. The company tried to backtrack on the comments Monday. Majid Boujarzadeh, a spokesman reached by phone, denied it was bankrupt. But media reports also quoted Iran's oil minister, Bijan Zangeneh, as saying the gas company "is destroyed."

The sanctions, aimed at preventing Iran from developing a nuclear weapon, have devastated the country's critical energy industry. While gas is a relatively small income generator, oil exports, a major revenue source, have been slashed by nearly half since the beginning of 2012.

Word that a refinery in Libya was restarting raised hopes that the spread could come back in. There was also a report of a Libya tanker loading. Yet the pendulum swing back toward tapering put the focus back on U.S. supply.  Still risks could be rising again. An explosion in southern Beirut, Lebanon killed at least 20 people.

Yet the OECD lowering growth estimates may also temper demand expectations. The Paris based OECD says the world economy will probably expand 2.7% this year and 3.6% next year, lowered from 3.1% and 4% predicted in May.  They also said that “The uncertain future of U.S. fiscal and central bank policies poses a growing risk to global economic recovery.” So what you are saying in part that you wish the Fed would keep quiet.

Bloomberg News reports that “gasoline at U.S. pumps gained for the first time in four weeks, rebounding from a 33-month low, as a fire at Citgo Petroleum Corp.’s refinery in Illinois lifted prices in the Midwest.”

Regular, unleaded gasoline at filling stations increased 2.5 cents from a week earlier to $3.219 a gallon, rising from the lowest level since Feb. 21, 2011, the Energy Information Administration said on its website yesterday. Prices are about 6% below year-earlier levels. The biggest gain was in the Midwest, where prices climbed by more than 5 cents to $3.126.

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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