By Phil Flynn, Alaron
The European Union's financial bailout of Greece has significant implications for oil and commodities. The value of commodities has been determined in large part by the value of the dollar and its relationship to the Euro, and the Euro has been soaring. Now, the growing potential for more bailouts from the EU means that confidence in that currency may never be what it was.
Yet today the market's focus is on China. It once again is raising its discount rate in a surprise move that caused oil to fall from its major resistance of 7550. China's Central Bank said it will raise the reserve requirement ratio for banks by half a percentage point from Feb. 25, for the second increase this year. This aggressive move means that major banks in China have to keep 16.5% of their deposits on reserve, though the specific rate can vary for each bank according to the Wall Street Journal.
For oil demand, this is critical as demand growth for oil is almost all focused on growth in China, the world's major emerging market. In fact, in yesterday's International Energy Agency report, they said as much. The Financial Times reported that the IEA said demand growth this year would come entirely from emerging markets and that, in spite of an improvement in the outlook for economic growth in the developed world, expectations for oil consumption in the West had barely changed. Overall, the IEA said that we will see global oil demand growth by 120,000 barrels per day to 1.6m b/d with worldwide consumption expected to average 86.5m b/d this year. Of course that was before China's surprise move.
I wrote yesterday that a close above $75.50 means the bulls should try to test near $80, but we failed at that level. Now that is a major resistance. The news out of China should mean that that level should be a great area to play off of for a long term move! The Department of Energy report is still a hurdle but play off of that level.
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Republished with permission from Alaron's Energy Report Daily.