Bailouts are good for oil. If the Fed decision to keep rates low for an extended period against a back drop of an improving economy wasn't enough to get you to buy oil, how about the umpteenth attempt to save Greece from bringing down the rest of the Euro Zone. It appears that the oil market thinks that with German employment numbers being strong and a bailout plan in place, it will be possible that this Greece fire might not spread. Germany was reluctant to come to the rescue because they were appalled by Greece's bad behavior, especially the fact that they fraudulently took steps to hide the true nature of their debt. Of course with S&P downgrading Greece to junk and other EU neighbors like Portugal and Spain, it became apparent that if they didn't move swiftly to avoid a Greek default, it was possible that other countries in the Euro Zone would start falling like a house of cards. Now that traders are convinced that a joint European Union-International Monetary Fund bailout package is imminent it is just the type of artificial stimulus that oil traders have been looking for.
This is just another artificial reason to buy oil in an artificial economy in an artificial world. Do not worry about that global glut of supply because oil traders know how the world deals with every economic problem, just throw printed money at the situation and the problem goes away. Well it goes away for a while anyway. In the case of Greece, it will go away long enough to drive up the Euro for awhile and the dollar as global governments encourage traders to take more and more risk. At the end of the day you too may get a bailout! That is assuming of course that when it is your turn they still have some ink left in the printing presses.
Oil is still being held hostage by the global government market manipulation. The price of oil is being propped up as the governments are desperately trying to keep the confidence ball rolling and keep the deflationary demons from reappearing. Traders had no choice but to react to the direction that the government was pointing them towards despite the fact that they are knowingly or unknowingly creating an oil bubble of epic proportions. Ok maybe not as epic as the biggest oil bubble of all time that was created in the beginning of this crisis when the Fed finally acknowledged that this little sub-prime crisis was a big, big deal. With the US economy and banking system falling apart, a stunned world is identifying oil as a commodity that has barter value that is more valuable than paper currencies where the value is based on faith-filled initiatives.
The oil spill in the Gulf is raising questions about the possible impact on price. Obviously the main concern at this point is to try to contain the leak. Short term the biggest impact is psychological. Because the well was exploratory, the oil market was not counting on the oil tomorrow. Yet the long term is not nearly as clear as this spill may set back progress for offshore drilling by decades. This may do to offshore drilling in the US what the 3 mile island debacle did for nuclear plant production. In the short term the fears that oil imports could be hurt have eased somewhat. Reuters News reports that the Louisiana Offshore Oil Port, which handles more than 1 million barrels a day of crude oil imports and is connected by pipeline to the biggest U.S. refining region, does not expect the expanding oil slick in the U.S. Gulf of Mexico to affect its operations, which remain normal for now, a spokeswoman said. There is some fear that some shipping channels will be shut but at this time it hasn't happened . The US Energy czar says no new drilling and that can turn things back. A sad day and week for the oil industry.