Morning Petrospective – September 16, 2011

stronger euro, a third day higher for European equities and a fourth straight day higher for the DJIA were the main factors pushing oil prices higher on Thursday. The strength flew in the face of double tops on charts, overbought pressures and a number of domestic economic indicators that could have been used as a pretext for selling this market. Starting the day, unemployment figures increased, with 11,000 more initial unemployment claims, but the markets ignored that, setting the day’s tone.

The weekly Labor Department statistics on employment showed 11,000 more first-time claims, pushing the figure up to 428,000. Just a few weeks ago, economists were hopefully looking at a number below 400,000 as a potential springboard to higher employment. Now, with the four-week average increasing from 415,500 to 419,500, economists fear that we may have the trend working the other way.

And, after the Empire State Index was released, Bloomberg noted “The Federal Reserve Bank of New York’s general economic index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August. Economists projected an increase to minus 4, based on the median of 54 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so- called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.”

The latest CPI figures showed headline inflation up 0.4% to an annualized rate of 3.8%, up from 3.6%. Food prices were up half a percentage point and gasoline prices were up 1.9% m/m. The worst part of this, other than being a clear tax on everyone at a bad time, is that it could handcuff the Fed, should it feel that another round of quantitative easing or the so-called “Operation Twist” may be needed.

These bearish factors were ignored, and traders focused on a 0.2% in US industrial production in August. Capital Economics said that this “was actually quite encouraging given that a 3.0% m/m weather-related drop back in utilities output subtracted about 0.3%.” It went on to note that “Manufacturing output increased by a solid 0.5% m/m, following a 0.6% m/m gain in July.” So, there are some positive factors out there … they just seem to be fewer recently.

The biggest news was from Europe, where five central banks guaranteed (dollar-denominated) support and liquidity to European banks. That pushed the euro up 1.48 cents to $1.3889. It does not change the longer-term technical picture for the US dollar, which still has a strong base and a breakout above resistance, but it did help push oil prices higher – in the face of a number of bearish economic factors here in the US. The central bank coordination was unexpected and it went a long way towards soothing investors, who bought equities in the US as well as in Europe. By the final bell, the DJIA was up 186.30 to 11,433.03. It needs to break definitively higher, though, to be in a bull market.

Now that the Euro-zone problem seems to have been solved … again … for the fifth or sixth time, we need to ask ourselves if it really has been put to bed with this latest move. Somehow, after turning out the light and tucking in Ireland, Greece, Portugal, Greece, Spain, Greece, Italy and Greece again, we have our doubts. If this is it, then it’s bullish. If not, it’s more of the same, we fear.

The amazing thing about the oil complex is its resilience. Every time it should plunge, it holds.

FMX Newswire

FMX Newswire is an overnight news summary designed to meet the needs of professional energy traders. The content is to-the point, professional grade and not widely reported in the mainstream media. All sources are professional respected firms and newspapers.

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