Oil market is keeping eye on recovery of US economy
Sunday, 08 Nov 2009
Hellenic Shipping News reported that the oil market doesn't follow the basic fundamentals during the last 6 months, that traditionally determinate crude oil prices, as demand and supply of oil, but it is focused on the progress of economic recovery.
The point is that a healthy and strong economy will set the basis for a strong demand for oil that will lead to stable, and probably high, oil prices. For the moment, the optimism about economic recovery keeps oil prices at the level of USD 80 per barrel, which is higher than OPEC’s official target of USD 75 per barrel. But at the same time recovery remains extremely fragile and even the Federal Reserve don’t rule out a retreat to recession.
The economy of the United States is showing the first signs of a potential turnaround. Important business and consumer indicators are pointing to improving developments, with output and sentiment numbers alike have advanced over the last weeks. It seems that the huge fiscal and monetary stimulus has provided a starting point for potential recovery. While this is encouraging, it seems that this improving trend still depends on the support of the government.
Government spending increased by 6.7% QoQ in 2Q09, while personal consumption expenditures were down by 0.9% QoQ. This skewed spending pattern has to return to normal to provide the conditions for a broad based recovery. Private consumption expenditures usually constitute the core engine of the economy as they account for around 70% of GDP and government led support at the present level cannot be sustained indefinitely.
US businesses are still positive about a recovery. The ISM indices continue to forecast an improvement. While the September number of 52.6 was slightly below the August number of 52.9, the ISM manufacturing remains above the threshold expansion level of 50 for the second consecutive month. The non manufacturing ISM jumped above 50 in September for the first time in a year, recording 50.9 compared to 48.4 the month before.
Encouragingly, retail sales increased in August, but that might have been mainly due to the incentives the government had issued for buying new cars within its so called 'Cash for Clunkers' program. Retail sales numbers, including cars, were up by 2.7% MoM in August, excluding motor vehicle sales, retail numbers were up only 1.1% MoM. Without the cash injections the numbers are currently forecast to turn negative for September. Meanwhile, factory orders in September declined by 0.8% MoM, which was far below consensus expectations of 1.0% growth. This weaker number compares to an increase of 1.4% MoM in July.
House prices remain sluggish. The S&P/Case Shiller home-price index is still in decline on a yearly basis. Home prices, according to the index, were still declining by 13.3% YoY in July as compared to a fall of 15.4% in June, while on a monthly basis the development is pointing to an improvement as prices were up 1.7%, the third consecutive month of positive growth.
