A Litany of Lows
Energy Report
by Phil Flynn
Be the first to vote...Login or Signup to vote
|
1 | 2 | 3
2008-11-12
|
Oil hit its lowest level since March of 2007. RBOB gasoline hit its lowest level since ever or at least since they have been trading the RBOB back in 2005. Heating oil is testing last month's low which is was its lowest level since 2007.
Stimulus or no stimulus the shock still has to be that China has to stimulate its demand for commodities in the first place and that fact is still reverberating around the pits. Dow Jones reports that China it will raise export tax rebates for the third time this year, as part of the government's CNY4 trillion (586 billion) economic stimulus package to bolster their faltering economy. These lows in commodities are not only a sign that demand is fading but demand expectations are fading as well. And the litany of lows does not stop with petroleum, it has hit cotton as well. The cotton market has been driven by Asian demand and without it cotton hit a low of 2845, the lowest level since 2002.
Sugar is on a two week low. The Asian stock markets weakness overnight seems to suggest that the Chinese stimulus package will do little in the short run to shore up the market or shore up demand.
And demand is falling all over the world and is now driving oil and commodities in a historic readjustment in the world economy. Even the Bank of England has acknowledged that these changes are raising the potential risk of deflation. The Bank of England warns that their inflation rate will fall well below the 2.0% target in the medium term if the benchmark interest rate remains at 3.0%. The Bank ofEngland said there was some risk of a period of deflation if rates remain unchanged raising the specter of more rate cuts though yet at the same time risk of a period of falling prices was relatively small. The bank projects that because of subpar growth, inflation will slow sharply in the near term as energy and food prices decline. Further out they expect that inflation will fall well below the 2% target, reflecting a larger margin of spare capacity and the waning impact of import prices.
Ah yes spare capacity. Something that was almost nonexistent in commodities. No spare production capacity, no spare refining capacity, not enough acres available for ethanol, etc. Slower demand means more capacity as we go from under supplied to oversupplied. That pendulum continues to swing.
Next Page
|
|
| Meet the Author |
Phil Flynn
Phil is one of the world’s leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets.
Energy Report has contributed 227 issues.Our users give the newsletter an average rank of 8.4/10 (24 votes)
See More about Phil Flynn
|
|
Wish List | 
Cart | 
FAQ
