A new six-month high in oil on the EIA report, Fed minutes and oh yea, a little ballistic missile launch from Iran! Welcome back to the wacky world of oil that is living and dying these days by the dollar and its value on the global market place.
Yesterday the dollar dropped on some happy talk from Treasury Secretary Tim Geithner and mixed messages in the Fed minutes. On one hand, the Fed is seeing tentative signs of improvement in the economy but on the other hand, they still may have to buy more Treasuries and other securities to keep the economy on track. In other words they may have to print more money! (I bet the Chinese love that.)
The dollar seemed to overshadow all things energy yesterday: the supply report, the Iranian missile launch, violence in Nigeria. Oil seemed to be dollar driven more than anything else. If the market expects that the Fed will print more money then that is not good for the dollar and it hit new lows for the year. If the Fed is not averse to printing more dollars then that means they are unconcerned with inflationary pressures. If they are not worried about inflation, then the run up in oil for them is not a concern.
But just 24 hours later the dollar’s fate might not seem as clear as it did yesterday. As reported by Dow Jones Market Watch, “Standard & Poor’s cut its credit-rating outlook on the UK to negative from stable though it affirmed the country’s AAA sovereign credit rating. We have revised the outlook on the UK to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term.”
That report gave strength to the dollar overnight and temporarily brought oil back down overnight. The weakening stock market also did not inspire more buying of oil and we saw some profit taking come back in.
On top of that we had a bullish weekly energy supply report from the Department of Energy. Not as bullish as the API so we lost some of the shock value but bullish nonetheless. The DOE reported that crude oil inventories decreased by 2.1 million barrels from the previous week. At 368.5 million barrels the DOE says that U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Gasoline on the other hand fell by 4.3 million barrels last week and fell below the five-year average for the first time this year. Still RBOB futures settled lower as it was felt that the market overreacted to some refining problems. Distillate fuel inventories increased by 0.6 million barrels, and are above the upper boundary of the average range for this time of year.
The debate is still raging on whether Specs and the oil companies are manipulating prices! I am getting some great responses and I will share some with you soon!
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
