Crude Oil Weak After The “Sequestered” Budget Cuts Become Law

The week is starting off with crude oil continuing last week’s decline drifting down 34 cents to trade at 90.34 as traders deal with a strong US dollar and weak eco and growth numbers. Concern on slowdown of manufacturing of major oil consumer China are pressurizing on oil prices. There has been a mixed reaction to the PMI reports last week, with the HSBC report meeting forecast which was still lower than the previous months and the official government report printing under forecast. The results showed a continued expansion but not as strong as the prior month. Major Asian equities are trading down on the back of weak economic data reported from Australia and South Korea. Declining building permits in Australia and slower pace of growth in inflation indicates lower growth of economic development. China Government has also said to curb property prices. So, lower trading equity market might be weighing on oil prices. However, confirmation of new governor for Bank of Japan has created speculation of monetary stimulus in current year, which is limiting fall on prices. Reports this morning said that the startup of nuclear power plans in Japan would not see results until 2014 dashing the hopes of the government to reduce their import of energy products. The nuclear agency says that the stricter guidelines would cause a delay in safety approvals for the start up.

Ahead of 17 nations summit scheduled for today to discuss the bailout of Cyprus, which is tiny in comparison to the other EU economies is becoming a much larger issue than ever expected. Also ongoing political instability related to Italy’s re-election may continue to keep the shared currency under pressure, which will extend loss on oil prices. The eurozone PPI is also expected to increase which may support the downside move in currency, supporting fall in oil prices. There are no major economic releases due from the US, but attention will remain focused on the “sequestered” budget cuts and the political rhetoric surrounding those cuts as President Obama signed a bill on Friday making the cuts effective.

This morning gas prices are trading in the red off by 27points at 3.432, down by almost 1% . Weak manufacturing activities of major oil consumers, the slowdown in Australia’s building permits and lackluster growth of South Korea inflation have created concern of lower gas demand by the nations. As winter draws to a close the US National Weather Service has forecasted below normal temperature for coming 6-10 days in the US which may create higher demand for heating purpose. Traders are hoping for one last winter blast as March is known for its unusual weather patterns.  Energy speculators can expect prices to trade in a confined range today.