A Study in Contradictions
It's no wonder that oil is on track to have one of its flattest
trading years since 2003. The last minute late November sell off
was another sign that the bulls and bears lack true conviction as
they to make sense of some obvious and some obscure fundamentals
that are driving the price in this somewhat wide swinging emotional
oil market. In fact the trading swan song for November and the
first of December snap back really symbolizes omneity of the entire
year in the oil market. In a normal time, better than expected
readings on U.S. Manufacturing and consumer confidence might
inspire an oil rally.
You might think that oil would celebrate the fact that business
expanded at a faster pace than thought for as the Institute for
Supply Management-Chicago Inc. rose to 62.5 the highest since April
from 60.6 in October increasing hopes that manufacturers would hire
and invest in new equipment as their business booms. Or perhaps the
market might take heart from the fact that consumer confidence
soared to a reading of 54.1, the highest level since June in the
heart of the Christmas shopping season.
Yet with the dark clouds emanating out of Europe and commodity
funds getting frustrated with their $100 barrel oil bets, prices
drove lower as funds wanted to take what profit incentive fees they
could before they go flat for the holiday and start shopping for
that GI Joe with the Kung-Fu grip for their kids. That was the case
even as the dollar rallied, capping off a month where the dollar
rallied off its QE2 lows hitting the highest levels since the Fed
hinted that they would print more money as investors seek shelter
from economic storm clouds in Europe. The oil bulls lost their
moxie as risk in the Euro-zone soared and the bailout of the Irish
Banks failed to convince them that the debt crisis will not
spread.
The EU has spent over 200 billion Euros to bail out just two of
the PIIG nations, Ireland and Greece, and traders are doing the
math trying to figure out the final tally when the rest of the
PIIGS like Spain, Italy, Portugal will come to the trough. The fear
of contagion raised fears of oil demand destruction despite the
fact that the German economy is flourishing and their unemployment
hit the lowest level since 1992 with their manufacturing sector is
soaring. Oil looked at the barrel half empty and the mood was sour.
Yet today that barrel is half full as oil has found its optimism in
a new month and strong economic data. China, that great hope of the
oil bulls and Europe, has the bulls once again looking beyond their
inbred fears.
The China Federation of Logistics and Purchasing said Wednesday
that China's official purchasing managers index (
PMI
) rose to 55.2 in November from 54.7 in October, beating private
economist's forecasts and oil bulls forgetting the fact that this
might inspire more tightening by the Chinese government. That is a
problem for another day perhaps because Spain's stock market is
even rallying after a slew of better than expected economic
readings out of Europe. Like Ireland's manufacturing PMI: 51.2v
50.9 prior or Spain Nov Manufacturing PMI: 50.0 v 51.2 prior or
Italy Nov PMI Manufacturing: 52.0 v 53.0 or France Nov Final PMI
Manufacturing: 57.9 v 57.5e or (
GE
) Germany Nov Final PMI Manufacturing:58.1 v 58.9e or Greece Nov
PMI Manufacturing : 43.9 v 43.6 prior on the entire Euro Zone
Nov Final PMI Manufacturing: 55.3 v 55.5e.
And in Germany data showed that retail sales increased 2.3% in
October from the previous month, exceeding market expectations. Not
to mention that bailouts of any kind have been bullish for oil.
Even if the contagion spreads, the market will expect a bailout and
go along expecting an uptick in energy demand. That will allow
bulls to focus on the potential for a tightening in global supplies
even as U.S. oil stocks hover at the highest levels since the
1980's. Of course the comparison to 2003 might be contradictory as
well as in 2004 when the oil bull market rallied nonstop into the
credit crisis of 2008. Contradictions of course lead to wide
trading ranges with many opportunities. Which reminds me, are you
getting my daily trading ideas? If you are not it is time. The
commodity markets are moving! What are you waiting for? Just call
me at 800-935-6487 or email me at pflynn@pfgbest.com And always
make sure that you are watching the Fox Business Network where you
can see me everyday!
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