Falling Oil Prices Make Double-Edged Sword

Falling oil prices are a double edged sword. On one hand they reflect the positive impact from rising US oil production and provide an economic stimulus shot. On the other hand they reflect a struggling global economy that is seeing falling demand as well as falling confidence.

As deflation and stagnation pressures mount the ECB acts to try to stem the sinking mood in the European Union.   European Central bank President Mario Draghi used one of the tools at his disposal, one that he did not need German approval on and decided to buy short term French covered bonds. This move is in response to concerns that the EU mired in recession could slip into a deflationary downward trek unless the Central banks and governments to something to stem the slide. Yet will buying short term paper in beleaguered EU economies provide enough stimuli to restore sinking confidence and provide support for a sinking oil price.

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Deflation pressures will only mount if the US exits its bond buying binge as scheduled. Last week St. Louis Federal Reserve President James Bullard, put the fear of QE back into the equation when he said that that the Fed should consider a possible delay end of the QE. Yet he failed to get the backing of   Boston Fed President Eric Rosengren said we need not read too much into recent volatility. The key will be identifying any weakness in broader U.S. inflation and workers' wages, and not simply reacting to turbulence in markets like inflation-protected Treasuries, known as the TIPS breakeven rate.

Which gives more importance to this week’s Consumer Price Index. Last week the moves on oil seemed to transcend just simply supply and demand moves but focused on more macro moves. For traders of oil they have to try to decide how much of the weakness in oils a good thing or bad thing for the overall state of the global economy.

Falling oil prices helped cement another downgrade in the Russian credit rating. There is a growing production war in the OPEC as they continue to increase production in an attempt to try to break the backs of either the US shale producer or Russia depending on who you want to believe. For oil we know that the abundance of production should lead to another increase in supply in this week’s inventory reports.

Yet products should keep us supported as refinery maintence and tighter than expected suppliers of both gas and diesel should help the market from falling too hard. Look for crude inventories to increase this week by 3 million barrels and a drop in distillates of 1.5 and gasoline by 2.5. Refinery runs will fall by 0.5%.

Deal or no deal Well maybe they do, There are reports that Russia and Ukraine agreed on  a price for winter gas supplies, officials from both countries said, moving closer to a  deal that would ease concerns that the countries' dispute could disrupt supplies to Europe via Ukraine.  So we have got that going for us.

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Russia and Ukraine have agreed a price for winter gas supplies, officials from both countries said, moving closer to

A deal that would ease concerns that the countries' dispute could disrupt supplies to Europe via Ukraine.

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