ENERGY PRICES WERE FIRM ON TUESDAY… thanks in large part to some end-of-quarter window dressing in the equities.
Monthly Review Oil and Products: Here we go again… the lousy economic headlines continue to scroll across the wires. True, we did see signs that perhaps the housing market has bottomed, i.e. February housing starts and sales of existing home sales were stronger than expected. On the other hand, industrial demand was nonexistent once again. For instance, led by the manufacturing sector (-0.7%) February industrial production plunged 1.4%. Manufacturing numbers from the New York and Philadelphia Federal Reserve Banks indicate that the factory economies in New York State and the Mid-Atlantic are plummeting and are still far from the bottom. Add to this the possibility that Detroit is headed for Chapter 11 and you have the contours for further weakness in demand through the remainder of 2009.
But, it is not all doom-and-gloom around the globe. Shares for three quarters of the BRIC countries posted impressive returns in the first quarter. For instance, China’s Shanghai Composite was up 30%, while Russia’s RTS Index and Brazil’s Bovespa were both up 9%. Only India’s Sensex failed to post a gain last quarter, down 3½%. Be that as it may, global demand for this year remains suspect. OPEC expects a 1.0 MMbbl/d decline in world oil demand in 2009 to 84.6 MMbbl/d. As such, the world is (and will remain) oversupplied with oil. Thus, from a macro viewpoint oil bulls are still fighting an uphill battle.
Cap-and-Trade gets a back seat: Senator Kent Conrad has softened his stance on fast tracking a carbon emissions credit trading system through the Senate. Conrad, who is chairman of the Senate Budget committee and who hails from the coal producing state of North Dakota, is not expected to seek budget reconciliation, a procedure that would have made passage of the cap-and trade bill more likely because the bill would need just fifty votes, instead of 60, for passage. Why the punt on a fast track for cap-and-trade by the Democrats? It is seen by some Capital Hill insiders as a trade-off to get President Obama’s Health Plan through congress. Cap-and-trade is viewed as a tougher sell that would be punitive to coal producing states, costing jobs during a period of high unemployment.
Down but not out: While this may be a setback for a cap-and-trade bill. It is seen by most as nothing more than a temporary delay. We learned last week that Jason Furman, deputy director of the National Economic Council told Senate staffers in a closed-door meeting in late February that the cap-and-trade system could generate between $1.3 and $1.9 trillion between fiscal years 2012 and 2019. That is significantly higher than earlier projections.
ETF Weekly Focus: The “demise” of the US Dollar is the news topic du jour. Talk out of China’s Central Bank is touting the creation of a new currency to replace the greenback. Formed from a basket of currencies, this new global economic unit would be controlled by the IMF. Chinese rhetoric stems from their angst of holding large amounts of US bonds. US Treasury Secretary Timothy Geithner stated that he is open to considering this proposal. Some market players interpreted this as an endorsement of the comments out of Beijing. Geithner later rescinded his comments, but nonetheless, it left the dollar shaky all week. So perhaps the recent rally in crude oil, which is priced in dollars, makes some sense. With US commercial crude oil inventories at 16 year highs, it gives a logical basis for the rally. Geithner may have given us the first clue on this administration’s position on the dollar.
We will closely monitor further indicators from the G20 London Summit.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.