Economy- Oil prices in positive territory to start the US trading session –

Posted: December 7, 2012 in Uncategorized

December 6, 2012

Oil prices are stabilizing after declining on a mostly bearish oil inventory report on Wednesday (see below for more details on the report). Although crude oil stocks declined both gasoline and distillate inventories soared as refinery runs surged. As has been the case for most of this year there is an ample supply of oil in the US and around the world. There is no shortage of oil anyplace in the world. The overall fundamentals remain biased to the bearish side.

This will provide a challenge when OPEC meets next week to discuss their forward quota strategy. With the continued E&P success in non-OPEC countries coupled with global oil demand growing at a very slow pace OPEC will be faced with the prospects of potentially having a negative impact on prices if they continue to produce at the current levels. They will have to make a cut either now or during the first half of next year unless the global economy turns around and oil demand goes through a growth spurt. The outcome of this meeting will be widely watched by the industry. The meeting is next Wednesday (Oct 12thth) in Vienna.

As has been the case for several weeks the short term movement in financials and commodities has been driven by the 30 second news snippets hitting the media airwaves over the state of the negotiations for a budget deal in the US to avoid the so called fiscal cliff. Based on the movement of some of the Republicans toward agreeing to raise taxes on the wealthy the prospects for a deal are starting to improve. As I have been indicating there will be a deal as soon as both side are done posturing and convinced that they got as much as they could for their side out of the negotiations. Once a deal is reached all of the markets will shift their focus back to the primary price drivers with the state of the global economy at the top of the list.

Positive economic data out of Germany this morning (manufacturing orders rising) is offsetting some of the negativity that the EU is still solidly in an official recession. Tomorrow the ever important US nonfarm payroll data will be released. Yesterday the ADP private sector payroll number came in as expected around 118,000 new jobs. Tomorrow the market is looking for the US nonfarm data to show an increase of 90,000 new jobs with the unemployment rate coming in at 8%. I am not certain this report is going to be much of a market mover in either direction as many market participants may discount the results as the numbers were likely impacted by Hurricane Sandy.

The global markets are slowly starting to trade like a US budget deal is near. The EMI Global Equity Index has gained 0.6% for the week resulting in the year to date gain widening to 7.4%. There are still four of the ten bourses showing double digit gains for the year with Germany and Hong Kong holding the number 1 and 2 spots. China remains the only bourse still showing a year to date loss at 7.8%. Global equity markets have been mostly a positive for oil prices and the boarder commodity complex this week.


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