Q ease on down the road

April 28, 2015 08:29 AM

The Saudis continue to tell us that they will continue to pump crude but with the way U.S. oil production is falling, and the way the globe is stimulating the economy, we may need it. 

The China factor is also is making waves. China is taking more dramatic steps to boost its economy, provide liquidity and restore confidence. The Wall Street Journal is reporting that the People's Bank of China will introduce new easing measures aimed at smoothing implementation of a local-government debt restructuring to encourage banks to buy new bonds issued by local governments. The bonds are supposed to replace loans owed by local government financing vehicles, off-balance-sheet platforms set up by towns and provinces to get around restrictions on direct borrowing. The first wave of refinancing is under way, with an initial tranche of bonds worth 1 trillion yuan ($160 billion).

The trouble, according to Dow Jones, is that the new bonds have longer duration and lower interest rates than the debt they replace, so banks are hardly keen to make the swap. Now the PBOC looks set to take up the burden itself. The PBOC would swap long-term loans for local government bonds now held by banks. This would give the banks added liquidity, and allow them to lend the money back into the real economy at a higher rate.

That news is giving oil some support and is also supporting the Australian dollar and copper. Oil is hanging in there even as Saudi Oil Minister Ali Naimi tries to convince us that Saudi Arabia will continue to give China all the oil they want. Ali Naimi reportedly said that Asian demand for crude oil remains strong and Saudi Arabia is ready to supply to the continent. 

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil 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.