oil Posts on Forex Blog
Oil, Bank Earnings Drive USD Higher
Jul 17, 2008
FX Traders caught up in the fears of an American financial apocalypse have relented to the change in market perceptions the last 2 days.
Most notably has been an $18 dollar drop in oil futures. Since Fed Chairman Ben Bernanke spoke before the Senate on Tuesday, oil has seen a precipitous drop. 3 factors seem to be driving the drop off:
a) a perception that a global slowdown will reduce oil demand below current forecasts b) A notable uptick in US supplies on Wednesday c) a perceived cooling in Middle East tensions as the US seeks to establish an Interest section in Iran and Israel - Hezbollah exchange prisoners.
Oddly enough, while I believe traders have over reacted to credit concerns recently, I also believe traders are over discounting Middle East problems. The Hezbollah celebrations and political spins of victory seem to increase the chance of an armed conflict. With Prime Minster Olmert stepping down in September, Israeli hawks seem destined to take the reigns of the next government.
On the credit front, the US has seen a significant rebound. US Banckcorp, Wells Fargo, and JPMorgan Chase have beat analysts expectations. And, Fannie Mae and Freddie Mac have rebounded in a big way. Undoubtedly, this was triggered by the 3 prong attack of Bernanke, Paulson, and Cox. IMO, SEC Chairman Cox's banning of naked shorts may have been the biggest impetus for the sudden reversal in the fortunes of these struggling financials.
So where to now?
Good question. For tomorrow at least, things should be Dollar bullish as German PPI plus Citigroup earnings may give a nice little bump up in the EURUSD.
OTOH, if PPI is in the least bit tame, and Citi joins Wells Fargo and JPMorgan, look for a pull back below 1.57.
In the near term, I remain as confused as just about every other financial body on this trade. But, as an old trader friend used to tell me, their is no such thing as a double top. That is, if a market tests a point twice and fails, we are almost certain to see a pull back of sorts. If that is to be the case, the EURUSD could easily fall back to the 1.53 levels.
Greenback, EUR, oil, USD
Israel - Lebanon Tensions Grow
Jul 14, 2008
In an environment of rising tensions between Israel and Iran, Lebanon has now taken center stage.
In the last week, 2 signs of another war have emerged.
1) Reports indicate that Iran, Syria, and Hezbollah have set up an advanced radar on Mt. Sannine. The mountain, which rests in central Lebanon, stands at 7,800 feet and is considered to be of great importance strategically.
In May of this year, Hezbollah staged a dramatic series of clashes over the Lebanese government's decision to sack a Hezbollah airport chief thought to have set up an intelligence gathering operation.
The radar on Mt. Sannine would allow Iran, Syria, and Hezbollah to monitor Israeli aircraft.
2) The Lebanese Armed forces has recently begun road work and the development of military posts in the Shaba Farms. This region lies at the junction of Israel, Lebanon, and Syria, and is also considered strategically important.
Over the weekend, Lebanese President Michel Suleiman warned that should diplomacy fail to return "Israeli-occupied land" to Lebanon, the LAF will take it by force.
Israel left the area unilaterally in 2000.
Israeli Defense Minster Barak has stated that "We should be saying clearly: Resolution 1701 has not worked, is not working and will not work. It is a failure."
Resolution 1701 was passed after the 2nd Israel-Lebanon war. Among it's key provisions was an affirmation that Hezbollah should be disarmed.
With oil markets trading on fears of a strike on Iran, this is not good news.
oil
Trade Balance, US Oil Inventory
Jul 8, 2008
Well it's about time the oil bull took a rest. Fresh off the July 4 holiday weekend, oil has slipped $9.25 in 2 days. Are traders banking on lower than expected holiday consumption? And if so, were they right?
Overseas, markets will move from the wee hours (est) on trade balance reports from Germany (2am) France (2:45am), and the UK (4:30am).
trade balance, oil
Dissecting Fed Commentary
Jun 25, 2008
As expected, the FOMC held rates at 2% today. Also as expected, the real focus of traders was Fed commentary.
Four things stand out in the FOMC statement
1. Analysts are sensing they key comment is:
"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased."
But is it really a significant comment? While upgrading inflation risks over the previous statement, it doesn't say that inflation concerns are greater than growth. It merely says that growth trends are still downward, while inflation is trending upward.
2. Commodity prices have entered the first paragraph
The April 30th statement did not mention commodity prices until the end of the 2nd paragraph. This statement specifically warns in the first paragraph that energy prices are a risk to recovery for the next few quarters.
3. The time period for battling inflation has changed.
The real key may have been the change in time periods. In April, the Fed stated:
"The Committee expects inflation to moderate in coming quarters"
Today, the Fed specifically "expects inflation to moderate later this year and next year" (emphasis added).
No doubt this is a recognition of the recent surge in energy and the likely impact of Midwest flooding.
4. The outlying votes have changed.
In the April meeting, Richard W. Fisher and Charles I. Plosser voted to hold firm. In this meeting, Richard Fisher voted to hike 25bps. With Mishkin leaving after the August meeting, inflation hawks may start to out number the growth doves.
The next FOMC statement will be released August 5th.
Markets remained largely muted to the Fed comments. Expect the EURUSD to edge towards 1.58 resistance before the next ECB meeting.
The Full FOMC Statement
June 25, 2008
Key changes underlined
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.
The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
inflation, interest rates, oil, FOMC
A Real Cure For Gas Prices
Jun 24, 2008
Forget the 2 presidential candidates. Uncle Chuck is here to tell you how the energy crises can really be solved in short order.
1. Send the cubicle workers home
Am I the only one dumbfounded by the number of commuters in the information age? With home bandwidth now reaching 15MBps for less than $50 a month and Web 2.0 on the horizon, why are so many people still driving to work?
In a recent US Department of Energy report, they suggested that increasing telecommuting in the 75 largest US Cities will have the largest net effect. They cite capital savings on transportation, reduced stress, fewer car accidents, reduced emissions, and a drop off in fuel usage
If telecommuting was increased solely in New York and Los Angeles, the nation would reap 50% of the reward.
2. Sigh, back to 55mph
I hate the idea as much as you. But it worked in the 70s, and it will work today.
3. Bring government employees in line
Outside of law enforcement, the US president, state governors, and snow plows - no government car should have anything bigger than a V4.
And while I am on it, perhaps we can start staggering the shifts of government employees? I recently stood in an office overlooking 3 freeways in Sacramento. I was stunned to see traffic doing ok at 4:50pm, and at a stand still at 5:10pm. I am told it is like that everyday, as the worker bees for the various government agencies have nearly identical schedules.
4. Drill off shore
Open up the land from 50 miles offshore and beyond to exploration. If China can drill off Florida, why can't we do the same? While congress is threatening to impose fines for unused leases, they ignore how far off shore they are. 50 miles and beyond is well out of eye sight from the coast. And I believe stringent environmental regulations can insure the eco-safety of new platforms.
5. Reduce the number and disparity of gas formulations
The large number of differing formulations on irregular intervals makes it hard for refiners to time out deliveries. This causes short term supply crunches and encourages distillate production. Lets get on one set of formulations at one set interval.
oil
Jeddah Conference Likely Meaningless
Jun 21, 2008
This weekend, Saudi Arabia will be hosting a conference of between OPEC, leaders of major oil using nations, and oil executives. The conference is unlikely to produce any substantial solutions to record oil prices.
Why?
1. Venezuela, the largest OPEC member from Latin America, is not attending
2. After news broke Friday that Israel staged a major exercise simulating an attack on Iranian nuclear facilities, Iran is likely to be at best unsympathetic
3. Their is a general feeling among OPEC nations that speculation and a weak dollar is responsible for oil prices
What MAY move oil prices is a new US House of Representatives energy bill that may be voted on this week. In the bill are provisions to a) charge oil companies a fine up to $50 per acre for unused leases and b) an anti speculation provision that seeks to combat perceived market manipulation.
oil
G8 Disappoints, Merely Urges More Oil
Jun 13, 2008
WTF is wrong with the G8?
After 2 weeks of central banker warnings of 'upside risks to inflation' and 'heightened alertness', they have failed to act in a meaningful way. At 11:45pm est they had the balls to issue a communique. A communique! Who are they kidding?
Surely they have seen the endless stream of headline inflation numbers rising to 4% and beyond. They must realize that recent Midwest flooding in the US will only further raise energy prices as corn (and ethanol) literally washes away. Certainly the ministers must grasp the geopolitical realities of continuing problems in Nigeria (light sweet crude) and the Middle East.
Perhaps the famous energy trader Phil Flynn said it best, "talk is cheap and the dollar is cheaper"
So what was the G8 thinking by merely putting out a communique? I am not sure, their is certainly time left for them to act. But IMHO, prospects for a substantial policy shift may have passed. If so, this lack of action will contribute to a weaker USD (and higher oil prices, and thus higher inflation) next week.
As for the communique, the G8 stated that,
""On the supply side, we urge oil producing countries to increase production ...In addition, the oil market can be made more efficient by promoting greater transparency and reliability in market data including on oil stock."
Ha! Officials from all over the world have been saying the same thing for months. Fat good that has done.
G8, oil
USD Up Late on Retail Sales Expectations
Jun 11, 2008
After a disappointing Beige Book, forex traders look to a spike in energy and food prices is likely to lead to a bump in US retail sales
Expectations are for a rise of 0,5% (0.7% excluding auto). That number should be taken with caution, as a) the number is NOT adjusted for inflation and b) consumers have clearly cut back on discretionary spending on items such as apparel and furniture. Gas prices have gone from a nationwide average of $3.20 to $4.00 during that time.
Greenback, oil, USD
Tidbits Under the Radar
Jun 6, 2008
I won't recap the events of today - just about every news outlet has reported the record rise in crude, the jump in unemployment, and 3% drop in US equities.
With those events dominating headlines, several nuggets of information may have slipped by.
1. German industrial production fell 0.8% in April and factory orders contracted for a 5th month.
2. The French April Trade Balance balance beat expectations, coming in at -€3.7 billion vs the expected €-4 billion reading.
3. The CAD and NZD moved weakly against the greenback The NZD can be explained by the RBNZ comments Thursday. The CAD weakness may indicate that forex traders anticipate a rate cut from the Bank of Canada. The interest rate currently stands at 2.75%, and may be cut 0.25% on Tuesday.
4. US wholesale petroleum inventories jumped 8.8% in April. Additionally, March inventories fell less than previously reported. The March drop of 5.6% was revised higher to 4.5%
5. The 6 member Gulf Cooperation Council will meet Monday to discuss technical issues related to the proposed monetary union in 2010. Oman has already indicated it will not join the union.
Loonie, CAD, NZD, oil, Kiwi
Signs of USD Rebound Over the Next Few Months Continue to Mount
Jun 5, 2008
Fed comments, improvements in services, ADP Jobs, and more Asian Oil subsidies may signal a fundamental rally in the greenback.
For the second day in a row, Fed head Ben Bernake took a hawkish stance on inflation. He indicated that long term indicators of inflation were of "significant concern" This is the 3rd time in a week (President Fisher last week) that a Fed member has made comments focusing on inflation. With Mishkin on the outs in August, the chance of a US rate hike this fall looks positive.
In addition, the US economy continues to skirt inflation. The service sector accounts for around 80% of American jobs. Well, today the ISM non-manufacturing reported a reading of 51.7, 0.7 higher than forecast. It represented a minor dip from the April reading of 52. A number above 50 represents growth.
Also, ADP numbers for private employment showed 40k new jobs, 70k over expectations. However, that ADP number needs to be taken with a grain of salt. The number has been wrong by an average of 104k since November. Q1 productivity also beat expectations slightly, with a 2.6% reading vs a forecast 2.5%. By comparison, 2007 Q1 productivity was up 1.8%.
Meanwhile, numbers in the UK and Europe continue to sour. Eurozone retail sales fell -0.6 vs an expected gain of 0.2%. And services seemed to contract for both the UK and the Europeans. The UK slipped into contraction with a PMI service reading of 49.8 vs a forecast of 50.5. The Eurozone PMI service number came in at 50.6 vs an expected flat reading of 51.1.
As expected by many traders, Asian countries have begun cutting subsidies. Indeed, Malaysia announced a whopping 40% raise in gas prices, and 67% rise in diesel prices! Malaysian consumers of gas will now pay $3.30 a gallon of gas (vs $2.32) and $3.04 for a gallon of diesel (vs $1.22). Malaysia - a net exporter of oil - becomes the 5th major Asian country to cut subsidies. Indonesia (raised prices 28.7% in late May), Taiwan (ended all price controls effective June 1), India (raised prices 11% this week), and Sri Lanka (raised prices 25%) have already acted on the skyrocketing cost of oil. It should also be noted that Egypt, the most populous Arab country, raised prices 40%.
As an aside, Chuck thinks many governments and traders underestimated the impact of Cyclone Nargis and the China earthquake. The two mega-disasters created a sudden need for diesel fuel to power generators. Economic historians will eventually recognize that disasters and ambitious speculation was the reason oil reached $135. July futures fell to $122.30 today.
The EURUSD traded in a 50 point range over 1.5425. The greenback is up 4% vs the Euro since the all time high of $1.6019 in late April.
Greenback, jobs report, Bernanke, oil, Fed
Data Bad, But Dollar rebounds on Oil Drop
May 27, 2008
First, the good news. Oil fell $3.34 (2.5%) today to close at $128.85.
Now the bad news. The Conference Board's Consumer Confidence Index fell more than expected to 57.2. That is the lowest reading since October 1992, which is really scary when we consider that neither the dot-com bust or 9/11 was bad enough to create such negative sentiment. Market participants had expected a reading of 61. Digging deeper, business conditions fell sharply while jobs sentiment remained fairly flat.
In housing, new home sales were up 3.3% from March. However, that number obfuscates the fact that March was revised from 526k to 509k. Year over year, new US home sales are down more than 40%. Given that February to June is the typical apex in new home sales, these weak numbers look concerning. The median price rose by 1.5% to $242.5k, but that too hides the extras thrown in by homebuilders to move units. Echoing the minor improvements in price and sales, April inventory fell to a 10.6 month supply (from 11.1 in March).
The Case-Shiller index was down 14% YoY, the biggest drop since the index was created in 1988.That number can probably be taken with a grain of salt, as it only measures the 20 largest cities and the index did not exist during the late 80s housing bust.
Again, despite the pessimistic news, the Oil number seemed to matter most, as the USD was up against most of the majors Tuesday.
Greenback, housing, oil, USD
Dollar Drops on Homes, Oil
May 23, 2008
The US Dollar was down against most currencies on Friday. The usual suspects - surging energy prices and a further decline in housing - were to blame.
The National Association of Realtors reported that US Home sales slid 1% to 4.89 million units. That was better than the market expected number of 4.55 million units. However, the markets found no reason to be optimistic as supply continued to grow and prices kept dropping.
Home sales were down 17.5% YoY (5.93 million) and a whopping 30% from the peak of September 2005 (7.2 million). The lack of home buying has sent the supply up to 11.2 months - a record level. The median price for existing single family homes declined 8.5% YoY, to a little over $200k.
On the energy front - oil rose $2.67 to close at $131.65. Other futures marched along. Gas rose 6.43¢ to $3.3687, diesel was up 1.9¢ to $4.558, heating futures rose 7.11 ¢ to $3.8461, and nat gas rose 19.8¢ to $11.563.
Bring back the sanity! IMO, no way fundamentals support the energy numbers. Demand for gas is down, gas inventories stand at near all time highs, and several pipeline projects that will reduce risk premiums and make transportation more efficient. These new pipeline routes will begin to open in the next few years.
On the heels of this pessimistic data, the US Dollar finished lower against the Euro, Japanese Yen, Swiss Franc, and Australian Dollar. Notably, the USD was flat against the Pound and up slightly vs the Canadian Dollar.
Greenback, housing, oil, USD
Dollar bounces back on Oil, Jobs, and Bill Gross.
May 22, 2008
The dollar was up against most world currencies today as signs of recovery keep peaking out from the trough of bad news. After hitting $135 in overnight trading, oil slipped to $130.81. Phil Flynn, the famous energy trader, has an excellent article at OnTheBid suggesting the oil bull run may be over. In addition, jobless claims dropped to the lowest in 4 weeks.
Further fueling beliefs that the Fed may now battle inflation, PIMCO Chief Investment Officer Bill Gross came out with strong arguments for battling inflation. He asked others to join him "in lobbying for change in US leadership...and the market's assumption of low relative US inflation in comparison to our global competitors." PIMCO runs the world's largest bond fund.
Now the bad news. The oil spikes of 73, 79, and 90 all led to quarterly contractions. Crude prices have risen 35% since April! Yeah, thats a spike. While the Us has so far avoided outright contraction, the bull run in crude is sure to be felt. In addition, according to OFHEO, house prices fell 3.1% in Q1 2008 YoY, and 1.7% since Q4 2007
The National Association of Realtors will release April existing home sales at 10:00am est tomorrow. The expected number is 4.85 million, the lowest since the number started tracking in 1999. (I wonder how times the existing home sales figure was cited by realtors during the run up? 'Existing home sales are at an all time high! Get in ow or forever be priced out!' Blah). President Bush will speak a short time later at 10:35 est, so don't run away from your TV after the NAR report.
jobs report, housing, oil, USD
