Oil tests $100 amid stock bubble concerns

Yield to the Stock Market

Rising yields (CBOT:ZBH14) should be raising eyebrows not only on the explosive stock market (CME:SPH14) but also the global oil market. Japan gets a hot inflation reading as it seeks to move out of deflation and is being viewed as a positive. While the stocks are slap happy and continue to rocket higher, signs that the small caps could be weakening could mean we are getting closer to at least some type of correction. Oil (NYMEX:CLG14) tries to test $100 a barrel on light volume as the focus seems to drift away from inventories and more to a rising stock market. The dollar is getting a bit weaker and the war in the Sudan is raising some concern, yet it is the stock market run that is the most important feature in the market right now.

Now, you can argue that the run in stocks is justified, and it very well could be, but when a market goes parabolic the chances for a wicked correction or sell-off increases. An early warning sign may be the fact that the 10-year yield (CBOT:ZNH14) went above 3%. Higher yields may slow momentum, something we may be seeing signs of with small companies.

Oil has some concern about the civil war in South Sudan. Bloomberg News reported that deposed South Sudanese Vice President Riek Machar said his forces control all of the country's oil fields and plan to allow crude production to continue amid a conflict with government forces.

Reuters is reporting that China will send its special envoy for Africa to South Sudan to help push talks. China's foreign minister was quoted as saying on Thursday, as the world's newest country spirals into violence. The envoy will head to South Sudan "soon" to communicate with all parties, Foreign Minister Wang Yi said during a visit to Saudi Arabia on Wednesday, in comments carried on the Foreign Ministry's website. Wang did not name the envoy, but he was likely referring to Zhong Jianhua, an urbane veteran diplomat who has deep experience of the conflict in South Sudan. The announcement came a day after China called for all sides in the South Sudan conflict to stop fighting.

The conflict has killed hundreds and some 45,000 civilians are seeking protection at UN bases. Violence erupted in the capital, Juba, on Dec. 15 and quickly spread, dividing the land-locked country of 10.8-million people along ethnic lines. "China is highly concerned about the evolving situation in South Sudan," Wang said. China has extensive energy interests in South Sudan. It is already the biggest investor in oilfields in South Sudan, through state-owned Chinese oil giants China National Petroleum Corp (CNPC) and Sinopec. Beijing is also one of Sudanese President Omar Hassan al-Bashir's major supporters. The fighting has also affected oil production, which accounts for 98% of government revenue in South Sudan. It has forced CNPC to evacuate some of its workers.

Oil inventories are released today! Some expect crude supply to increase by 2.2 million barrels.

Natural gas is pulling back ahead of today’s Energy Information Administration reported despite the fact that we are having the coldest start to winter in more than a decade. Demand has been strong and production curtailed as ice and below zero temperatures impacted production. We are looking for a 176 bch withdrawal.

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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