It is Election Day and so far the biggest winner still seems to be the oil Bears and the losers may be those that vote for a change. The stock market and polls are pricing in an Obama win, yet I am not sure that some of the people voting today realize they might be voting to eliminate their own jobs. Raising taxes on small business, the main driver of job creation, will raise the unemployment rate close to double digits. Of course the plan is to put more people on the government payroll to offset the job losses in the private sector and to assure that their new employee’s vote for their new boss if they know what's good for them.
Obviously the global markets are not that impressed with an Obama win. In fact the markets feel the opposite. Perhaps we will get a honeymoon rally after things are over but the talk of raising taxes on the so called rich will just undo a lot of the positive impact that we get from the other entire economic stimulus. Raising taxes on the “rich” is no way to inspire confidence in the lending or credit markets. It will not increase the appetite or confidence to take a risk. Why would you take a risk if at the end of the day the government becomes the biggest beneficiary? Is that any way to solve this crisis? Is this any way to help our battered manufacturing sector?
Consider for just a moment the fact that the US manufacturing sector - according to yesterday’s Institute for Supply Management manufacturing report - had the biggest drop in 26 years. That was the second month in a row that manufacturers cut back production sharply. The ISM index came it at 38.9% in October which was down from 43.5% in September. This is the lowest level since September 1982. Market Watch says that, “The size of the decline was unexpected. The consensus forecast of estimates collected by Marketwatch was for the index to fall to 41.5% as all regional manufacturing surveys were weak in October. Both new orders and production fell to their lowest level since the early 1980s. Readings below 50 indicate contraction. The ISM index had plunged in September to recession territory of 43.5% from 49.9% in August.” Manufacturing is in a recession and many small manufactures will be pushed further into despair by the Obama tax cuts. Layoffs are right around the corner.
Of course a slowing economy is good if you are an oil bear right now .The ISM manufacturing index has always been a good indicator of future energy demand and with it being at recessionary levels I would expect recessionary like demand figures for energy. Globally demand for oil is being challenged as well as the dogmatic faith that oil bulls had put in the Chinese economy. I was blasted when I wrote about China bubbles in the wine and how I could ever suggest that the Chinese economy could slow. Despite the fact that I gave readers an early warning that China oil demand was indeed slowing many still did not want to believe that was possible. Yet yesterday, according to the Financial Times Wen Jiabao, China’s Prime Minister, warned that high growth was needed to maintain social stability as fresh evidence emerged that China’s economy was slowing quickly. The LA times also wrote of problems in the China economy writing, “In the initial weeks of the global financial crisis, Chinese officials resolutely declared that they were not significantly affected. But now, as factory closings, dire corporate earnings reports and stock market losses continue to mount, the Communist Party's confidence has changed to another feeling entirely: fear.” The Times goes on, “For the first time in the 30 years since China began its capitalist transformation, there is a perception that the economy is in real trouble. And for the Communist Party, the crisis is not just an economic one, but a political one. The government's response offers a glimpse into its still ambiguous relationship with capitalism -- relatively hands-off in good times, but quick to intervene directly at the first signs of a downturn in order to prevent popular unrest.” (Sounds kind of like Paulson). Other analysts not only are lowering their price targets for oil (catching up to The Energy Report) but also substantially lowering their demand forecasts for China. One forecaster said that China’s demand growth would be zero in 2009. The LA times says that, “China's leaders have made a variety of moves to try to stabilize the economy -- three interest rate cuts in six weeks, new export tax rebates, reduced costs for home buyers, and billions spent on infrastructure. But any hope that a strong Chinese economy -- the single largest contributor to global growth -- would offset the slowdown elsewhere is gone.” Of course readers of The Energy Report have known that for some time.
O boy, someone cares. Isn’t nice to know that someone in Iran’s government cares about our battered economy? Doesn’t that make you feel all warm and fuzzy? According to Dow Jones Newswires, “Improved economic conditions in the U.S. will be positive for the energy Market because it will boost crude oil demand and should be a priority for any new administration in Washington, Iran's Organization of Petroleum Exporting Countries Governor said." "I think it should be a priority for both groups (republicans and democrats) to improve their economy first," Mohammad Ali Khatibi told Dow Jones Newswires in a phone interview late Monday. "If they can help bring their economy out of the recession, it is good for the people and also good for the energy market, because there will be growth in the energy demand side". Oh what a warm feeling in my stomach or maybe it is the flu, I am not sure.
Brazil is bopping! There may be a global slowdown but Brazil is making history in oil. Reuters news reports that Brazilian state-controlled oil giant Petrobras shipped crude oil at a record rate of 574 million barrels per day in October, totaling 17.8 million barrels. Reuters said that almost two thirds of the oil was shipped to the United States, followed by China which bought nearly one quarter, and Europe and Latin America which both took around 5 percent. Reuters says that Brazil hopes to join the ranks of the world's major oil exporters after the discovery of huge reserves under a layer of rock beneath the sea bed which will be expensive to access but could contain 50-80 billion barrels of crude. Yet will sustained low oil prices put a damper on that dream?
Oil which was going lower most of the night got a boost this morning on a larger than expected rate cut from The Reserve Bank of Australia. The bank cut its cash rate by three quarters of a percentage point and according to Marketwatch cited the effects of the global slowdown and falling commodity prices and fears that the current environment might lead to a downturn in domestic spending. That means there could be an increase in Foster beer supply so it is not all bad. Still the move hurt the Aussie dollar and also helped bring the dollar off of its high horse and brought oil up and out of the hole.
We're short December crude from apprx 7439 - stop 7230!
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