Energy report: Has Fed discovered inflation?

You Don’t Say

Sometimes is not about what you say, it's about what you do not say. In the big Fed statement yesterday, one lone rouge inflation hawk dared to stand up and say, Hey guys, it is our job to worry about inflation. The lack of a comment about the housing market left traders wondering whether it was a glaring omission or perhaps it was an admission to the fact that the Fed is under a lot of political pressure. The Fed also changed their wording on inflation prospects from inflation would remain subdued for some time to it "likely" would remain subdued.

Ah yes, the changing face of politics where everything remains the same. Obama tried to move to the right though overall, at times he seemed a bit contradictory. Obama tried to reach out to the energy sector by embracing drill, drill, drill, nuclear power and clean coal technology as long as we at the same time have a lot of money for “big green”. Oh yes you have to take care of the "big green” lobby as they spent millions to put him in office and they expect billions of green dollars back in return. And don’t forget he also said he would repeal "tax breaks” for oil companies and give tax breaks to big green. The Robin Hood energy plan: take from the rich energy companies and then give their money to the poor inefficient green energy companies.

Beyond the Fed and Obama, oil just could not seem to shake off pathetically weak demand. The EIA showed, as I basically predicted, that crude supplies fell because of fog down in the Gulf which drove crude to a one month low. Commercial crude oil inventories fell by 3.9 million barrels from the previous week. That still puts supply at 326.7 million barrels, U.S. crude oil inventories are just above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.0 million barrels last week, and are above the upper limit of the average range. Distillate fuel inventories increased by 0.4 million barrels, and are above the upper boundary of the average range for this time of year.

As for demand, it was reported that total products supplied over the last four-week period has averaged 18.8 million barrels per day, down by 2% compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 8.7 million barrels per day, down by 0.8% from the same period last year. Distillate fuel demand has averaged 3.7 million barrels per day over the last four weeks, down by 8.1% from the same period last year. Jet fuel demand is 1.5% higher over the last four weeks compared to the same four-week period last year.

Bottom line: with weak demand and plentiful supply this complex is the definition of bearish. There has been a lot of market talk that oil stored in tankers is again raising dramatically. We have the highest forward demand cover for gasoline since 2002.

Bottom line: there was nothing that happened yesterday that changes my longer term bearish outlook. Long term look for oil to go to the $40 handle.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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