While the Eurozone Bank stress tests seemed to come out better than expected, a drop in German business confidence is not exactly inspiring talk of explosive demand. The German IFO fell to 103.2 in October from 104.7 in September a 6 year low. This comes as 25 of the 130 banks under the ECB stress test fell below the minimum regulatory capital thresholds in the worst case scenarios. The tests covered the bank’s capital positions at the end of 2013 and it is said that 10 of the 25 failures would pass today.
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Oil may mark time ahead of the Tuesday Federal Open Market Committee meeting where it is widely expected that we will bid adieu to quantitative easing. Still the Fed has to be careful as the possibility of falling confidence in Europe and divergent interest rate directions between the United Sates and Europe could add even more downside pressure to oil. We should see oil test near 78 dollars soon the next major support.
Not to mention what should be another weekly increase in US oil supply. Oil production is at a 30 year high and OPEC is desperately trying to break the back of the US producer who is not showing any sign of slowing down. We should see another big increase in crude supply to the tune of three million barrels. Gas and distillate should fall by 2 million barrels and refinery runs should fall by 0.5.
Falling oil prices should help the refiner’s margins and their profit reports this week. The princess of petroleum Trilby Lundberg in her widely followed national survey of gas prices reported that the average cost of U.S. regular grade gas dropped 18 cents per gallon in just the last two weeks. She puts the average for regular grade gas is $3.08 per gallon which is down 65 cents a gallon from the high and 29 cents lower than a year ago. The mid grade average is at $3.31 and premium still at a dissapointly high $3.47.
That spread between regular and premium has been near a record high as components have been in tight supply... She puts retail diesel fuel at an average of $3.67 as strong demand from farmers keep upward pressure on prices as the late harvest has caught some wholesale buyers of diesel off guard. Lundberg said the price has dropped 65 cents since is peak in May and is 29 cents below what it was last year. San Francisco is clocking in at $3.45 per gallon, while Memphis, Tennessee, had the lowest average at $2.73. Trilby says that if crude keeps falling than price will keep dropping. Maybe the Fed will help with the QE end.
There was word that Venezuela has changed its mind and says it won’t sell its U.S. refining unit Citgo. Still those close to the matter say it may be a ploy to garner a higher price.
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