MEASURE FOR MEASURE

The logic that is being advanced for oil’s rise in overnight markets holds that disappointing Chinese manufacturing data, which dropped to the lowest level in more than a year, is a sign that government efforts to rein in growth, having apparently succeeded, will soon conclude.

This idea took additional weight from the Chinese government’s pledge to leave monetary policy, “moderately loose.” US Macroeconomic events last week showed weaker growth compared with the previous quarter driven by negative trade and slowing inventory builds.

Stocks and commodities slumped initially after the GDP report but prices rebounded as manufacturing and confidence indicators for July beat market expectations. Chicago PMI surprisingly improved while University of Michigan Confidence Index fell less than anticipated. AThe degree of skepticism expressed in the dollars value does little to help oil’s fundamental picture to sustain prices in the $80 area.

The US dollar’s drop certainly emanates from the perception that the economy is moving at a weaker than expected pace, thus reflecting a drop in consumer confidence to the lowest in the three months; hardly conditions that can sustain the current rally, particularly given the level of stockpiles; which are a mere 20MM bbls from the level they reached as prices were nearer to $60 and just climbing off their 2008-2009 lows.

 

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