We have 350 billion reasons for oil to bounce back a bit but is 350 billion going to be enough? Maybe we need 350 billion and one because we may have already spent it! Holy TARP! Bank bailouts and falling oil demand! I need some TARP and I need it bad. Oil tried to dig itself out of the deflationary hole it dug itself into as the stock market rebounded on the realization that the Senate was going to approve the release of the $350 billion in TARP funds. Yet today that boost might still be uncertain as weak demand fears and another bail out may have us all feel like we are in need of a bail out.
As banking problems continue to mount the pressure to print money and borrow money is rising and the final amount of money we will need to reinvigorate confidence in this economy is at this time beyond comprehension. Market Watch reports that the U.S. government announced in the wee hours of the morning that it was injecting $20 billion into Bank of America and guaranteeing losses on over $400 billion of assets both from Citigroup and the Charlotte, N.C. lender. Where is George Bailey when you need him? In a statement released Friday, the Treasury Department and the Federal Deposit Insurance Corporation said they will invest $20 billion in Bank of America from the Troubled Assets Relief Program in exchange for preferred stock paying an 8% dividend. The government also will provide Bank of America protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans and other such assets, which have been marked to current value. Bank of America will absorb the first $10 billion of losses while the government will share losses from there, up to $10 billion. If that pool of assets sees losses of over $20 billion, then the government will absorb hits on 90% of them.
The Hill reported that House Speaker Nancy Pelosi is calling for an $825 billion stimulus package. That right $825 billion. What is even more amazing is that $825 billion allocates less money for tax cuts than President-elect Obama is asking for. The Hill says that the package includes $275 billion in tax cuts, $25 billion less than what Obama originally proposed.
So to get a rally in oil, we need to see economic life as oil and gas supplies are at glut proportions. We are at record levels in storage in Cushing Oklahoma and at 20 year highs in oil stuffed in ships. Bloomberg News is reporting that Frontline Ltd., the world's biggest owner of supertankers, yesterday said about 80 million barrels of crude oil are being stored in tankers, the most in 20 years. The so-called contango pricing structure has been caused by excess oil supply as demand slows and speculation that output cuts by the Organization of Petroleum Exporting Countries will reduce the glut later this year. Bloomberg sources say that supertanker storage deals are being done at about $75,000 a day. Assuming that a tanker has a 2 million- barrel cargo that works out at $1.12 a barrel over a 30-day period. Traders also need to pay financing and insurance costs.
Yesterday's action in the natural gas market was another sign that the economy is in worse shape than many people feared. The 94 Bcf withdrawal was less than expected as idle factories are allowing the market place to weather some nasty weather. Industrial demand continues to wane and even though the Empire State Manufacturing improved from dire to dismal don't look for a major rebound anytime soon. Inventories at factories are high and we have to move old product before we start making a lot of new. More struggles in a struggling economic world.
Speaking of that, world oil is trying to get weak on more bad demand news. Dow Jones newswires is reporting that the, International Energy Agency would cut its world oil demand forecast by a huge 1 million barrels a day on expectations economic recession in various parts of the world and increased weakness in China are putting a further squeeze on energy consumption. That's right they said weakness in China, the beacon of hope for the oil and commodity bulls. Earlier this week China cut fuel prices on the hope it would stimulate domestic demand and economic activity. I spoke to one source that said China's economy is cratering. Factories are closing like crazy and things are looking scary. Now that the IEA is admitting what we have been talking about for some time you have to imagine that the demand drop from China for oil and grains and everything will be more than the IEA or many suspect. The IEA says that In a sign of the overall bearish outlook on demand oil consumption this year in China -- long the biggest driver of the global growth in crude demand -- will grow at its weakest pace in eight years. Chinese oil demand is expected to clock growth of just 1.1%, or 320,000 barrels a day, versus growth of 4.2% last year and IEA expectations last autumn of almost 6%.The agency thinks the Chinese economy will grow by just 6.5%, the weakest in around 20 years.
Dow Jones also says that, In its grimmest forecast on demand in years, the IEA said it expected 2009 global crude demand to contract 0.6% after dropping 0.3% last year, the first two-year dip in consumption since 1982 and 1983. The IEA forecast is based on expectations the world economy will grow by just 1.2% in 2009 versus the International Monetary Fund's estimate in November of 2.1%. Crude demand globally is expected to average 85.3 million barrels a day this year, the IEA said in its widely watched monthly oil market report.
Can it get any uglier? I am afraid that it can. If the market fails to rally on this government spending spree it will be hard to get optimistic on oil. We are seeing demand drops of historic proportions and we are trending down. The financials are stressing the market and the glut is looking insurmountable in the short term. Yes I know that we will turn around in the future and yes I know about peak oil but we have to face the cold, hard realities that the world is facing. We are facing some major challenges.
Let's face the challenges together. Feel free to call me at 800-935-6487 or email me at email@example.com to open your account and if you are being challenged by these markets! And check me out each day on the Fox Business Network.
Still short after all these months!
We're short February crude from apprx 4461 on the triple rollover and closed the position at apprx 3540!!! Rolled to a short March position from apprx 4354 on what is now a quadruple rollover. Put in a stop at 5500.
Sell March heating oil at 15500 - stop 15700.
Sell March RBOB at 12500 - stop 12700.
Stopped on long Feb natural gas from apprx 520 at apprx 490. Sell March natural gas at 550 - stop 590.
Have a GREAT day.