Market Report: Oil Traders Eye Asian Demand, Inflation
Oil prices are trying to find the right balance between strong Asian demand and the very real possibility of continued global central bank tightening. While all eyes were on China last week it was India that made the move to rein in red hot inflation, raising the pressure on China to join them in trying to avoid expanding an explosive inflationary bubble.
India said containing inflation is imperative as it prepares for a policy meeting and increases its so called reverse repurchase rate to 3.5 percent from what had been a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent. Bloomberg News reported that it is India's aim to slow inflation to an acceptable 5 to 6 percent as opposed to the current 9.89 percent and that containing inflation has become "imperative."
Yet is it also imperative to control inflation in China. China has done a poor job in slowing down its red hot economy and right know has taken its eye off the ball as it looks to defend its currency peg to the US dollar The Chinese have defended the peg as being fair because the US has devalued its currency. This politicization may make it harder for the Chinese to take the steps they need to slow growth thereby increasing the risk of a market bubble collapse.
These fears are helping the dollar gain ground and not even the passage of the health care bill in the congress seems to be slowing the momentum down. With the Greece debt situation still overhanging the market and taking away some confidence from the Euro, the dollar should gain even more strength. For oil that means the market is open to a wider correction. But as of yet the market remains trapped in a long-term trading range. Bears won a victory last week when the bulls failed to take oil to the next level. We still feel the best way to play the market is short term but it may be time to put on some bearish option plays.
Gas prices are still rising. Trilby Lundberg in her Lundberg Survey reported that the average price of regular gasoline at U.S. filling stations rose to $2.8141 a gallon. Gasoline gained 8.62 cents in the two weeks ended March 19, according to Lundberg .