Energy Price Outlook
Oil prices may hold in a rut again today, as there is little on the calendar that is likely to move prices. API data will be released after the close today, and then the focus will turn to Wednesday’s weekly EIA inventory report and then to its monthly short-term outlook. Chinese trade data and the IEA’s monthly report are due at week’s end. Europe appears to be entering a period of calm before decisions on Spain and Greece, and the U.S. appears to be biding time until the Nov 6th election and eventual solution to the fiscal cliff. Chinese economic data has been relatively week, but there’s few expectations that much will be done to boost its economy and thus its energy demand until after the Nov 8th election. Developments on the economy have fed into the downgraded forecasts made yesterday by the World Bank and the suggestion by the Brookings Institute that the global economic recovery is “on the ropes.” That sets up for a negative environment for energy prices, along with higher oil production, weak levels of investment in energies, and the downgrade of tensions between Israel and Iran on Friday. A partial resolution of the California gasoline situation is unlikely to offer much impact on the global oil market as we believe it’s a localized issue regarding refinery capacity. We’d look for WTI to break below $87.70 support this week.
Yesterday’s trade settled -$0.55 in WTI and -$0.20 in Brent. There was little news to go by, with the exception of slightly adverse indications on the economy. Friday’s weak payroll figures created follow-through pressure in the oil market’s overnight session, along with the World Bank’s cut of its GDP forecast for East Asia. The Brookings Institute made mention that the global economic recovery is “on the ropes,” and was mentioned throughout the day as a source of “ris-off” sentiment. No decision is expected to be made on Greece at least until the Oct 18-19 Leaders summit, while the Greek PM Samaras warned last week that Greece will run out of money by end-Nov. The uncertainty in Europe created weakness in the euro and thus strength in the dollar, which offered additional pressure to commodities. Finally, House Majority Leader Boehner said that he doesn’t believe a fiscal deal can be reached during the lame duck session and said that such a move may not be best for the country. The inability of Washington to deal with the fiscal cliff before the election shows once again that a deal may be pushed until the last minute, which will keep ratings agencies on the offensive.