Crude morning meltdown

Daily Energy Market Analysis

After crude oil failed to complete the comeback yesterday, sellers are at it again using the return of Libyan oil and weak Chinese data as the reason for the selling. Libya’s State-run oil company is claiming that it can raise production to 8000,000 barrels a day, which could raise exports that on average are now running about 500,000 barrels a day. Of course, in the past, every time oil sold off on Libyan reports, they got disappointed a short time later. Maybe this time is different. Maybe.

Crude oil seemed to get a mixed read on China’s purchasing managers index, or PMI, that came in at 51.2 for May. That was showing expansion and beat expectations slightly but failed to inspire confidence of a big surge in economic activity and or a surge in demand for commodities. An official monthly survey showed that growth in China's factory activity was steady last month and is a sign that the recovery in the world's No. 2 economy is holding up. 

The weakness in oil and in other industrial metals is one of the reasons that we have seen a disturbing lack of inflation. Both the Fed and the ECB are astounded by the lack of inflation and may change their timetable for raising rates, a tapering off on stimulus. In the European Union, inflation fell to 1.4 percent (year-on-year) in May, from 1.9% in April. The energy component fell to 4.6% from 7.6% in April.

Yet, strong consumer spending number in the United States is offsetting weak inflation data increasing the odds of a June interest rate hike. The Commerce Department said that spending increased to 0.4% from a revised higher 0.3 in the previous month. Of course, if commodity prices plummet ahead of the the Fed meeting, that could be viewed as a warning sign on the overall economy and it could cause the Fed to change its plans. So, it appears that commodity movements swill be watched close by economists and central bankers around the globe.

Still, the Saudi energy minister Khalid al-Falih says that global oil inventories will go down to the five-year average very soon. In a meeting in Russia today with the Russian oil minister he said that, “our joint declaration with Russia concluded that while the rebalancing goal is on its way to being achieved, more needed to be done to draw inventories towards the five-year average.”

Goodbye to Three Mile Island. The accident at Three Mile Island set back nuclear power in this country and is now going to be mothballed.  Dow Jones reports that Exelon has begun the process of closing down its money-losing Three Mile Island nuclear power plant and will complete the shutdown by September 2019 unless lawmakers make changes to help the facility compete in an increasingly cut-throat energy market.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.