Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oh, my! It is happening! Holy sequester! Get your children off the street and lock your doors and windows. Today is the deadline for the “sequester” and at any minute the President could an order for the government to drastically cut government spending! OH NO!!!
It appears that the hopes of a last minute deal to suspend the spending cuts are toast. There will be politicians walking the streets dazed not knowing what to do if they can’t spend other people’s money. Things are so bad that Vice President Joe Biden is even threatening to forgo taking a military plane to his home and country club in Delaware and actually is considering taking the train and talking with regular folks! Oh, the horror! We can’t let this happen! What if you were stuck on the same car as him! Call you senator! Call your Congressperson! Keep Joe off the train.
As far as the markets are concerned, well they really don’t care too much. Yes, stocks did say goodbye to February with an end of the month profit taking sell-off and we seem to be entering the month of March more like a lamb than a lion, but that could be more due to the fact that U.S spending cuts may actually improve our balance sheet and help deflate asset bubbles like we have seen in metals, stocks and even oil.
Of course today it may be even more about weak Chinese data that is adding pressure to the oil complex and to the metals both precious and industrial. The official PMI from the National Bureau of Statistics of China fell to 50.1 after seasonal adjustments in February giving us the weakest number in five months and just barley an expansion. The new orders hit a four-month low of 50.1 while new export orders dropped to a five-month low of 47.3.
Petroleum products are still getting hit hard off of the rebound in supply out East and the glut of crude. Still my first target for oil, which was near $90.00, around the gap could offer support though we should still look for a dip below 90 before we bottom again for a new seasonal run.
Products like diesel have come down hard as well. As smaller fleets are moving to gas, the cost of diesel has been a negative on economic growth. The Energy Information Administration says that
the average retail price of on-highway diesel fuel for February through December 2013 is $3.93 per gallon. The projection for the average retail price in 2014 is $3.82 per gallon.
Yet it may be diesel where we have to most risk of price spikes. In recent years diesel has been much
more expensive than gas because of the refining distribution. Ultra low sulfur costs makes refining more expensive than gasoline.
Although U.S. week‐ending stocks of distillate fuel in January 2013 reached their highest levels in nine months, they are still at the bottom of their previous five‐year (2008‐12) range for this time of year. After averaging $3.97 per gallon in 2012, EIA expects that on‐highway diesel fuel retail prices will average $3.92 per gallon in 2013 and $3.82 per gallon in 2014.
Because supplies are below average the risks for diesel retail spikes are high.
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