LOOKING AT THE WEEK AHEAD

Oil and Gasoline Price Movements and Drivers

A growing concern in this country is the rise in petroleum prices. Looking at retail sales for gas stations, we see strength in October, declining in November, really dipping in December, and flat for January. While petroleum and gasoline inventory reports vary, due often to tankers or hub manipulation, consumer purchases show a trend. This trend is associated with retail pricing the consumer must pay. Simply put, the consumer will reduce gas consumption when prices rise. The table reflects the most recent retail sales data from the U.S Census Bureau showing October 2011 through January 2012 data.

Now the issue is the price difference between U.S. West Texas Intermediate (WTI) crude and North Sea Brent crude. Traders bet that the price of WTI will decline, or not rise as fast, when compared with Brent crude. Brent crude has been moving the price of gasoline.

The cause for Brent leading is because traders expect U.S. petroleum to get stuck in distribution hubs such as the one in Cushing, Oklahoma. While WTI can’t move due to infrastructure deficits, Brent is brought in by tankers and feed petroleum needs. Should the spread in price grow, should WTI get bogged in the inability to be distributed, the past has shown increased gasoline pricing. Should the WTI/Brent spread expand, look at gasoline price responses.

Change in European Plans to Bail Out Greece

Europe is always a thing to watch in the week ahead. Over this weekend, the G-20 group met, considered issues and…..Apparently everybody wants improved firewalls from the Eurozone to insure against Greek contagion. U.S. Treasury Secretary Geithner said that he isn’t prepared to ask for more money from Congress for IMF bail-out efforts. Emerging markets, such as Brazil, have also said that other Eurozone money exists to shore up guards against insecurity.

Anticipation now is for funds to be taken out of the European Financial Stability Facility, which nobody really understood, and its bonds demonstrated as much. This money is to be diverted to the more stable European Stability Mechanism. With this, IMF chief Christine Legarde has unforeseen issues to deal with before convincing the IMF board to commit more cash to Greece, which is supposed to occur in early March.

Accordingly, watch results of legislative votes in Germany and Finland on the Greek bailout. Then, March 1-2, a Eurozone summit will be held to address the “firewall” issue.

China Shows Issues with Growth Moderation and Sustaining Liquidity

China is looking to restructure local government debt and the facility platforms sponsoring such debt. Apparently some 1.8 Trillion yaun ($286B) is coming due in 2012. Current growth rates aren’t supporting the debt and to prevent liquidity risk, a restructuring should bridge the gap.  

Economic Reports  

 Hard data releases will include on Monday; the Dallas Fed MFG Survey and pending home sales. Tuesday; Durable Goods Orders, Richmond Fed MFG Survey. Wednesday; U.S. GDP, Chicago PMI. Thursday; Jobless Claims, ISM MFG Index. Then China reports its PMI manufacturing numbers, while the Eurozone releases its retail sales and PMI manufacturing numbers.