Yesterday oil soared 5% after Iranian state media said an unknown pipeline exploded in Saudi Arabia. After the report was dismissed by a Saudi official, oil settled decidedly lower. Brent Crude settled at 126.20 after jumping to 128 on the false news, levels not attained since July 2008 when the growing economic crisis sent oil spiralling to record peaks of more than $147 a barrel.
Iran, the world’s fifth largest oil producer and second-biggest producer in OPEC after Saudi Arabia, is facing new challenges selling its crude in the midst of tightening U.S. sanctions and an EU embargo that begins on July 1. These actions threaten to tighten global crude supplies. Saudi Arabia has boosted oil production in the last 2 months to help alleviate the shortage and supply more oil in the market.
On Friday Iran will hold a referendum vote in their parliamentary elections which is expected to renew the power of the clerical establishment of Supreme Leader Ayatollah Ali Khamenei over hardline political rivals led by President Mahmoud Ahmadinejad, according to Reuters. The election is not expected to have an impact on Iran’s foreign policies, including their controversial nuclear program, and policies which are strictly controlled by Khamenei. The presidential elections occur in 2013.
On Wednesday the Fed Chairman gave his reading on the economy.
Chairman Bernanke signaled concerns about the U.S. employment level. Bernanke told Congress that unless growth accelerated, the high U.S. unemployment rate would not keep dropping. He also spoke about the risks to the U.S. economy with rising gasoline prices.
“Gasoline prices have moved up, which is a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power,” Bernanke said.
The Commerce Department said its gauge of inflation rose .2% in January.
Investors were disappointed that the Fed signaled they are not moving closer to quantitative easing through QE3. The U.S. market declined on Wednesday after it became clear that QE3 was not likely to materialize.
Better than expected U.S. Data
Yesterday jobless claims dropped lower while U.S. auto sales rose 15.7% according to Autodata. This is the highest gain since 2008 and an improvement over 14.1 % in January. Many Americans are upgrading their vehicles and searching for more fuel efficient vehicles. Chrysler sales increased 40%, Ford 14%, and G.M. 1.1%. Toyota Motor Corp. and Honda Motor Co. deliveries each gained 12 percent, while Nissan Motor Co. sales increased by 16 percent.
Earlier in the week, pending home sales, GDP, and consumer confidence showed better than expected figures. However, U.S. manufacturing slowed in February and consumer spending was mostly flat in January.
Progress is being made in Brussels at the EU Summit concerning the EU rescue fund. Finance Ministers signed a new fiscal compact which won’t be implemented until later.
ECB President Mario Draghi told reporters, “All in all its a reassuring picture which is still fragile.” He continued, “So far its a much better picture than what we had in November.”
Euro zone Finance Ministers dispersed €58bn of cash designated to assist the €206bn Greek bond restructuring deal but withheld the remaining €71.5bn allocated to help the Greek government. On March 12 Finance Ministers will meet again to decide if they should add to the rescue fund. On March 9th a Greek debt swap will occur. On March 13th the IMF will decide their contribution level to the rescue fund.
In January the unemployment level in the Euro zone was 10.7%. In February Euro zone manufacturing declined for the 7th consecutive month. Spain missed their 2011 budget targets and will present a new budget later today.
Euro zone banks are storing their cash at the ECB in record overnight amounts, according to Bloomberg. On Wednesday Euro zone bank deposits totalled 475 billion. On Thursday it reached 530 billion. A few hours later, ECB deposits grew even higher to 770 billion euros which signals caution and low risk appetite in the Euro zone.