An unexpectedly sharp drop in a key consumer confidence index sent stocks plummeting on Friday and drove down prices for crude oil futures so that the benchmark contract finished the week virtually unchanged from last Friday.

The near-month contract for West Texas Intermediate settled at $76.01 a barrel on Friday, compared with $76.09 a week ago.

The University of Michigan/Reuters consumer index dropped to 66.5 in July from 76 in June, a much sharper decline than was expected. The bad news, which cast renewed doubt on the strength of the economic recovery, sent the Dow Jones Industrial Average tumbling 261 points to close the week perilously close to the 10,000 mark once again at 10,098.

Persistent doubts about the economy have kept oil prices trading in a narrow range for months. News from the Federal Reserve on Thursday that manufacturing growth in several regions had slowed down in the latest reporting period dampened oil prices.

The index for the Philadelphia region, for instance, slipped to 5.1 in July, down from 8 in June, compared with 10 forecast by economists. The positive index indicated that the sector is still growing, but less robustly than hoped. The Philadelphia index was 21.4 in May.

Oil prices rose earlier in the week, tracking the stock market’s gain on positive earnings news from Alcoa, kicking off the quarterly earnings report season. Oil futures settled above $77 a barrel on Tuesday.

But the market turned bearish, despite a bigger-than-expected decline in oil inventories on the week, and a weakening dollar in foreign exchange markets, which usually translates into higher oil prices. Stockpiles for gasoline and oil distillates like heating oil and diesel rose in a sign of continued weak demand.

 The Fed on Wednesday released a summary of its meeting last month indicating concern about the economy growing more sluggish and this outweighed the positive news.

Some traders took heart in the narrowing discount between the August and September contracts, indicating that short-term supplies might be tightening. But analysts said it would take some significant news to break oil prices out of the $70 to $80 trading range of the past few months.

Source: http://oilprice.com/Energy/Oil-Prices/Stock-Prices-Economic-Data-Buffet-Crude-Oil-Futures-in-Lackluster-Trading.html

By. Darrell Delamaide for OilPrice.com who offer detailed analysis on Oil, alternative Energy, Commodities, http://oilprice.com/Finance/Economy/" target="new">Finance and Geopolitics. They also provide free Geopolitical intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

A Bankrupt BP - Worse For The Financial World Than Lehman Brothers?

The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.

People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.

And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register… a foot in the door so that they could subsequently beg for an extension in credit size and duration.

For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC – or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP’s distress. They are one of the only "hard asset" entities backing up this so-called exchange.

If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.

As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter… we now have a major oil company on the verge of going under. Another leg of the global economic "chair" is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.

All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again – and it could probably be a lot worse. The world is in a far more delicate state now.

Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn’t take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.

The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet – but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn’t make an individual now turn towards gold at full speed, it is likely that nothing will.

Source: http://oilprice.com/Energy/Energy-General/A-Bankrupt-BP-Worse-For-The-Financial-World-Than-Lehman-Brothers.html