The Energy ReportPhil Flynn
The Energy Report Thursday January 29, 2015
Saudi Shake UP
Russia cut interest rates as Europe falls deeper into deflation and the New Saudi king shakes things up as oil prices continue to try for a bottom. Its the last day of the month so hedge funds that are massively short could take profits and try to ignore the world around them.
Let us start with the Saudi shake up. The new King Salma, after vowing to keep the status quo after King Abdullah's death to avoid shaking up markets, is now shuffling things up and it could signal a change in Saudi oil policy. King Salman canceled the Supreme Council for Petroleum and Minerals, the kingdom's top decision-making body on oil, and while he decided to keep long time oil minister Ali al-Naimi in place it is possible that he may not have the same power over Saudi oil policy. This comes days after Saudi Aramco announced they would have to renegotiate some contracts and postpone some projects due to falling oil prices. The company also had to ask some oil field service companies for discounts because they are having trouble with the low prices.
Oil prices dipped below our long-term range of $44 a barrel after the Energy Information Administration released its natural gas inventory report. The market fell hard after they reported a smaller than anticipated withdraws of by 94 billion cubic feet dragging down not only natural gas but crude oil and strongly enough cold and silver along with it. It appears for some commodities but the nat gas number was the last straw. Yet crude clawed back to close above $44 again so it looks like the market cleared out some stops and weak longs. Gold and silver struggled but got some support after comments, by Janet Yellen to Senate Democrats, that rates would remain low gave gold and silver bulls reasons to believe.
Russia is also making moves to stimulate its economy. In a surprise move the Russians central bank lowered its main interest rate causing a major drop in the ruble. The Russian one-week auction rate was cut to 15 percent from 17 percent. This comes after Dow Jones reports that Russian state-controlled gas group Gazprom said net profit plunged 62% in the third quarter of 2014 compared with same period the previous year, hit by the slide in the ruble and a lack of deliveries to Ukraine.
This comes as deflation fears in Europe are increasing. Reuters reported that euro zone consumer prices fell at a record-equaling pace in January, more steeply than expected and supporting the backers of the European Central Bank's money-printing plan to combat sustained deflation. The European statistics office said in a first estimate on Friday that prices in the 19 countries, using the single currency in January were 0.6 percent lower than a year earlier, after a 0.2 percent decline in December. This was a sharper fall than 0.5 percent decline forecast by economists in a Reuter's poll. The euro zone has only endured negative inflation rates in one other period, from June to October 2009. The 0.6 percent decline this month matched the lowest figure during that period, in July 2009.
Dow Jones reports on the latest Keystone Developments. The Senate passed legislation approving the Keystone XL pipeline, moving the Republican-controlled Congress one step closer to a showdown with President Barack Obama over the long-stalled project.
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February 1st, 2015
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