Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Crude Oil Price Uncertainties

Commodities / Crude Oil Jul 15, 2011 - 06:13 AM GMT

By: Seven_Days_Ahead

Commodities

Best Financial Markets Analysis ArticleThe Euro zone sovereign debt crisis had barely been quietened by Greece agreeing to the austerity terms of her second financial rescue, when traders turned their attention to the public finances of Italy.


FUNDAMENTALS:

The Euro zone sovereign debt crisis had barely been quietened by Greece agreeing to the austerity terms of her second financial rescue, when traders turned their attention to the public finances of Italy.

With the 2nd highest debt to GDP ratio in the Euro zone and 4th highest globally, it is surprising that Italy hasn’t been under scrutiny previously, but unlike Greece and Portugal and even Ireland, the Italian economy is broader-based and has a solid manufacturing base.

However, after Berlusconi criticised the austerity measures of his finance minister, traders became concerned about the sustainability of Italian public finance. Bonds rallied hard, stocks sold off and the Dollar strengthened against the Euro.

Gold too enjoyed a rally registering a new all time high as the other thorny issue worrying markets, the US budget deficit and lack of agreement about how to reduce it, risks pushing the US towards default. That is, unless the Congress and President can agree a plan to raise the debt ceiling.

But oil has remained well-supported during this period. Apart from being an essential commodity, it is also a risk asset and has tended to track the fortunes of the stock markets, since confidence in equities usually equates to optimism about economic growth and by extension demand for oil, so current price action is impressive.

The current worries concerning the Euro zone and US have growth implications, not just locally, but globally. 

If the Euro zone cannot come up with a plan that neutralizes and then corrects the debt problems of its member states, at some point the real economy will suffer. The weaker periphery cannot be expected to adopt ever-harsher austerity measures in exchange for aid that has the affect of crushing growth. And the richer countries like Germany will pobably refuse a situation that becomes a transfer union in all but name.

But even if the Euro zone gets to grips with its problems, should the US fail to agree a plan that lifts the Federal governments debt ceiling, the US will be in default. For a country that borrows vast amounts daily that would be a mistake and a disaster. Once investors lose confidence in the credit worthiness of a country like the US that has for years been the back bone of the global economy, the repercussions would be truly global.

The US would struggle to finance herself at acceptable yields and would probably have to adopt strict austerity measures.

Global markets could be thrown into turmoil. Just think of the size of China’s foreign currency holdings that are mainly in Dollars and largely invested in US Treasuries… add to that India and the oil-exporting states and there could well be a move to divest from US assets on a scale that would create a financial crisis beyond anything so for experienced.

With these risks so very real, it is surprising to see how well oil has held up. Clearly traders have confidence in the Euro zone and US authorities ability and basic common sense to reach a solution that avoids the worst-case scenario.

Moreover, the likes of China and India continue to record strong growth; China’s current growth rate is 9.5% and that is considered a slowdown, so oil has some independent demand. 

So looking beyond the current crop of difficulties it is easy to see why oil is a long-term bull market, but getting from the short term to the long term isn’t a trouble-free path.

The Euro zone Sovereign debt crisis has been running for well over a year and we doubt the authorities there really grasp what needs to be done and if they do, political will is lacking.

In the US, policy makers and legislators seem to forget that the US has new global challengers creeping up; China, and India. The US used to be seen as the consumer of last resort; the US sold Treasuries to surplus countries to fund her lifestyle, the surplus countries needed somewhere to invest, but that relationship is slowly being eroded, a US default would likely cause a fatal rupture.

So although oil has held up well so far, what would be the reaction if:

1.the US failed to raise her debt ceiling,
2.the rating agencies slashed the US credit rating,
3.US bond yields soared, and
4.the US was forced into making deep spending cuts.

The US economy would likely go into a deep recession and US military power would decline. Old certainties would vanish and the world economy would be forced to adjust, meaning oil prices would collapse.

Can this happen? It’s in the hands of the Euro zone and more important, US authorities.

Mark Sturdy
John Lewis

Seven Days Ahead
Be sure to sign up for and receive these articles automatically at Market Updates

Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

© 2011 Copyright Seven Days Ahead - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Seven Days Ahead Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules