Morning Petrospective – August 16, 2011
il prices slowly crawled higher in trading overnight and early Monday morning, as the dollar lost ground against the euro. Despite the best efforts of German officials to downplay expectations, the world was looking forward to Tuesday’s summit meeting between France and Germany (Sarkozy and Merkel). The ECB was reported to have bought €22 billion in bonds from a number of European countries under pressure. The candidates were Spain, Greece, Ireland or Portugal, but there was no breakdown available. The ECB has €96 billion in bonds so far.
By 11:00 AM, the euro was up 189 points against the dollar, the DJIA was up 130 points and crude was up $1.30, with gasoline up 220 points and heating oil up 350 points. Oil prices were very clearly taking their cues from the DJIA and from the euro. The Empire State manufacturing was unexpectedly lower for a third straight month, falling to minus 7.7 from negative 3.8 in July. Manufacturing is what led economic data higher through 2010 and now appears to be in danger of losing upward momentum.
The oil markets have done an admirable job of ignoring the bearish ramifications of this Empire State manufacturing index as well as Friday’s consumer confidence number. Some traders were still talking about the surprising strength of retail sales, which was up 0.5% on Friday.
By 2:00 PM, crude oil was up $2.20 a barrel, the euro was up 185 points, the DJIA was up 156 points and gold had went from being down on the day to being up $24.50 an ounce. Refined products were up around three cents a gallon. The euro was the dominant factor pushing oil prices higher.
Both the stock market (in a grander sense of all equities) and oil prices seem to be rising on oversold pressures after being pressed under a very heavy thumb. That pressure seems to have disappeared just as suddenly as it developed, showing how critical the role of time is in these markets right now. As we have noted over the last three or four weeks, equities and oil prices looked inclined to rally on the slightest rumor of a debt ceiling agreement before that long week, when the DJIA dropped every day on discouraging news from Congress. Had an agreement been reached the week before, prices were showing every sign of being able to break to new highs in equities and above $100 in crude, over 314.00 in heating oil and above 316.00 in gasoline. The following week, the long week of disagreement, equities declined every day, in increasingly larger amounts, but oil prices still tried to test their important highs, breaking them intraday, but failing to settle above them. The next week, two weeks ago, was the calamitous one. The technical failures in oil markets brought in liquidation and fresh selling … and equities were hammered. Last week was one of psychological recovery, and this week seems to be one of technical recovery, with prices rising into the oversold vacuum above us. Eventually, these rallies will seem fatuous and prices should sell off, although without the vigor or urgency seen during more recent declines. But, time is clearly the critical element in all of these equations
FMX Newswire
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