Morning Petrospective – August 5, 2011
il prices were slammed lower on Thursday as investors dumped assets across the board. Equities, commodities and currencies were all hammered as liquidation to cash was the day’s one feature. Traders were buffeted by fears that the global economy is slowing, nations are embracing austerity and the euro-zone debt crisis is spreading. Economic worries in the US led to fears that oil demand will soften dramatically at the very moment when China seems to be headed for a harder “landing” than many at first thought likely.
The US dollar was stronger against most currencies on Thursday, and the euro (below left) dropped more than 200 points against the greenback. The selling in the euro started last night at around 8 PM and it continued through all of Thursday’s session. There was a rally in the euro around 2:30 AM, but it turned around a little after 3:00AM and the dollar kept gaining against the euro straight through this evening.
Equities markets were pummeled, and the DJIA was down 512.76 to 11,383.68. In the last nine days, according to CNBC, more than $1.3 trillion in market capital has been wiped out. As we noted, before the government spent days haggling over the debt ceiling, markets had rallied easily on every rumor that a deal was getting done. After squandering that market sentiment, we are now in a market that is in a bearish frame of mind. A deal was done, but the market sees a weakening global economy and years of painful austerity ahead.
Crude oil prices dropped more than five dollars a barrel. Heating oil was down more than 12 cents and gasoline lost more than 19 cents a gallon. Prices were down more than 5% in crude and 6.62% in gasoline. It was the lowest level since February 18th.
Thursday’s weekly unemployment figures showed a drop of 1,000 in initial unemployment claims to 400,000, the lowest level in nearly four months. Estimates had expected to see an increase of 4,000 to 405,000. The bigger employment report is out on Friday, when the Labor Department releases its full-month figures for July. Capital Economics expects a net gain of 50,000 jobs, or 100,000 private sector jobs against 40,000-50,000 government jobs lost.
If Friday’s jobs number is surprisingly robust or bullish, we could see assets of every stripe rally. Prices are extremely oversold, in equities and in oil markets. Because of the oversold pressures, it will not take much to give us a rally, potentially a steep rally. But the fundamentals are just not there for the buyers to build anything enduring from the rally. That does not mean that any rally will not carry for a few days; it might. But, we tend to believe that we will ultimately see prices make new lows below the ones seen on Thursday.
In other news, consumer confidence dropped last week to its lowest level in more than two months. The Bloomberg Consumer Comfort Index was minus 47.6 on July 31st, its lowest reading since May. It had been minus 46.8 a week earlier. Confidence among females fell to its lowest level since October, 2009. Among those making $100,000 or more, confidence was its lowest since November, 2009.
FMX Newswire
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Bentek Energy
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Platts
- Natural gas use in China forecast by NDRC to grow to 300 bcm by 2020.
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Bloomberg
- Crude Oil Heads for Biggest Weekly Decline Since May Amid Rout on Economy.
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- Shell Wins U.S. Approval to Explore for Crude in Alaska’s Beaufort Sea.
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