The Energy Report - China Slows and Euro Woes

By Roger Baettig | July 13 2012 7:30 AM

China's growth fell to 7.6 per cent in the second quarter which was its slowest since early 2009 giving oil a boost off of renewed Chinese stimulus hopes. China's real estate market is softening and is causing some to speculate that China will act again to try to pump up growth despite the fact that a 7.6 percent growth rate would be nice if China could keep growth at that Goldilocks level. Yet the fear is that without stimulus that number will continue to fall.

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Yet still oil is still locked in a choppy range and perhaps has a bit of an upward bias based on events yesterday. Oil reversed from the lows on a report that the U.S. Treasury Department imposed additional sanctions on Iran's nuclear and ballistic proliferation networks and identified front companies that it said help Tehran evade sanctions. The Wall street Journal reported that the series of measures increase pressure on Iran to address international concerns about its nuclear program, which Tehran insists is for peaceful purposes. They are a continuation of the scores of actions taken since 2006 to target Iran's nuclear proliferation activities, said a senior administration official describing the actions on a conference call. The efforts are having a significant impact.

The impact on oil is more pressure on the Iranian regime and the fear that they may indeed lash out. Those fears are also being increased by the reports of even more US military presence in the Persian Gulf. Reports by AFP that the United States has deployed a fleet of robot subs in the Gulf to prevent Iran from blocking the strategic Strait of Hormuz with mines in the event of a crisis, officials said Thursday. The SeaFox drone has been deployed in the Fifth fleet AOR, which includes the Persian Gulf and the Arabian Sea, a Navy official told AFP, confirming information first reported in the Los Angeles Times newspaper. The undersea drone, about four feet long and equipped with a camera and sonar, is guided by a cable from a ship. German manufacturer Atlas Electronik says the drone has a range of about 3,200 feet and carries an explosive to destroy mines. SeaFox devices will be employed from MCMs, or mine counter-measure ships, in the Persian Gulf, the Navy official said.

This report has increased the risk premium a bit and along with the increased sanctions have but a bit of risk premium back into the market.

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Phil Flynn