Mixed Global Economic Data Supporting Crude Oil Prices

An recent economic blog posted several charts showing both positive and negative economic and sentiment survey data showing how optimism about the economic recovery is gaining ground.  Taken in its entirety, the data shows that the global economic downdraft is easing and certain generally leading indicators show signs of a possible recovery beginning.  The challenge is understanding exactly how sure the leading edge data may be in forecasting an ending to the recession.  Wall Street started talking last week about the possibility that the official end to the recession would be called as of this year's second quarter.  Clearly this view is becoming predominant and supporting the rise in the stock market and the sustainability of $50 a barrel oil prices.

Oil prices have been sustained in the $45-$55 a barrel range by this growing optimism and some weakening of the U.S. dollar that generally boosts commodity prices.  On the other hand, the inventory data continues to portray a negative fundamental outlook - rising inventories, weakening gasoline demand and significant challenges for OPEC to boost its production quota cutback compliance above 80%.  If we get a wave of bad economic data, and certainly there are a number of possible weak spots such as commercial real estate, further financial industry problems, an extended bankruptcy for Chrysler that includes the shutting down of its manufacturing plants and reductions at its suppliers' operations, also.  Would a seemingly "bad" bankruptcy for Chrysler suggest that GM will suffer a similar fate when its June 1 deadline arrives?  Couple these problems with the disclosure of the bank stress tests and their implications for capital raising requirements by the rumored six banks, and you have a scenario for a retreating stock market and consumer confidence that would translate into the manufacturing sector not boosting hiring and output. 

We are certainly not forecasting a downturn in the stock market, nor are we convinced that we will have blue skies and bright sunlight.  The problem for the energy industry and energy stocks is that crude oil prices may be sitting on a bubble that could be pricked sending the growing positive outlook into reverse.  That is a risk energy execs and investors need to weigh as they ponder the future course for the industry in 2009.

Here are four charts showing the various economic conditions mentioned above.

Japan's industrial production index rose by 1.5% in the latest month.

Export data appears to be bouncing around, possibly establishing a bottom.  The good news is that the data doesn't show further deterioration - certainly not at the rate we have experienced since last fall.

Global economic activity continues to contract.

Survey data is showing upward trends that support the growing view that an economic bottoming phase is underway; the recession will soon be ending; and there is reason to believe that an economic recovery will be underway in the second half of 2009.