Oil’s four day boomlet vanished overnight as the usual weekly reports on US production and stocks revealed a faster than forecast (optimistically) build up in inventories to a new 80 year high for this time of year. The news saw oil prices slump by up to 8% in US and European trading and spillover into early dealings in Asia this morning.
On top of that, a late announcement from the European Central Bank about the use of Greek debt as collateral in the eurozone (it can’t, reversing a previous decision that allowed Greek debt to be used as security for loans) added to the selling pressure in the final minutes of the session in New York.
The news on oil and the price slide help end the string of double digit gains for the Dow.
The Dow all but reversed a 110-point gain in the last half hour or so and finished up just 6.62 points at 17,673.02. The S&P 500 lost 8.54 points, or 0.4%, lower at 2,041.49. The Nasdaq Composite fell 11 points, or 0.2%, at 4,716.70.
The move by the ECB has raised pressure on Greece and its banks and creditors and renewed fears about the stability of the eurozone, just as those concerns had been eased by an apparent change of approach by the new government on its debts and bailout.
Oil prices in the US and Europe had rallied 20% in the four trading days up to yesterday on naive optimism that the surge in US production was ending and would start falling.
The optimists based their belief on claims the continuing fall in oil rig numbers in the US fields was a bullish sign of an impending peak, then slide in production.
Much of the sharp rise in oil prices was put down to short covering by investors as the price started rising last week – and by investors cashing in trading profits to rollover oil deals at higher prices later in the year.
But it gathered pace as more and more traders went long to ride the price rise and started talk about the end to the long price fall and even how the price was going back over $US&0 a barrel in the next few days.
That ended overnight and the slide of 8% or more in the price of US West Texas Crude and nearly 6% in the price of Brent crude in Europe helped bring a note of circumspection to trading.
There’s now an understanding that it will take a bit longer before the oil market stabilises, although brokers are starting to note with surprise that the cuts announced by oil companies large and small are larger and more extensive than forecast.
But in Australia traders ignored the oil slide and focused on a surprise cut in the reserve ratio for Chinese banks by the country;s central bank last night.
That will inject well over $US100 billion in extra liquidity into the Chinese banking system to lend and ease continuing liquidity pressures which have forced the central bank to lend tens of billions of dollars in short term loans for the past two months.
In fact the Chinese central bank has joined a dozen or more central banks in easing monetary policy in the past month or so – notably by Canada, Australia, Switzerland Denmark and the European Central Bank.
The share price futures contract has our market heading for a small rise at the opening of 10 to 15 points.
Gold prices edged $US6 a higher as a result of the Chinese easing and reached $US1,265. The Chinese news also saw copper edge a few cents higher as well to $US2.59 a pound.
The US oil data from the industry body, the American Petroleum Institute and the Federal Government’s Energy Information Agency (EIA) both showed a 6 million plus barrel rise in oil stocks last week, when the forecasts were for a rise of less than 3 million – a big miss.
West Texas Intermediate crude for March delivery slid 8.1%, to trade around $48.75 a barrel in New York this morning, Australian time. And Brent crude — the international benchmark — fell by more than 6% to around $US54.50. That wiped out the previous day’s gain of 5.8%. The fall in the US price wiped out the previous days’s 7.8% rise.
The Energy Information Administration said crude stockpiles rose 6.3 million barrels for the week ended January 30 to 403 million barrels, yet another 80 year high for stocks at this time of year (in mid-winter). And the American Petroleum Institute reported a rise in weekly inventories of 6.1 million barrels.
But buried in the EIA report were figures which will help add to the belief that the slide in stockpiles is about to end – In a sign low prices are boosting demand for petrol, US refineries lifted their production of petrol by 8.8 million barrels a day over January, a rise of more than 6% on January last year, while supplies of diesel rose almost 5% year over year.
Analysts say that is pointing to growing demand (as we saw with US car sales in January, especially of fuel chewing trucks and SUVs) and will help start draining oil stocks as we move into the US summer driving season mid-year.
