Energy report: Fed backstops oil bulls

Buy with the blessing of your Federal Reserve. Oil bulls just have to love the Federal Reserve who came out and said in their post rate decision statement to go ahead and buy some oil. Ok, I admit they did not quite put it that way but they might as well have. After telling the world that fed fund target rates would continue in a range of zero-0.25% and stay there for an extended period they started to talk about how the economy was getting better. The Fed said that economic activity has continued to strengthen and that the labor market is beginning to improve. Now let me get this straight, the economy is improving and interest rates are staying low and the extended period language remains the same! The Fed is saying to buy oil.

The Feds outlook was very positive. The Fed says that growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. Inflation fears? No worries as the Fed says that "substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time."

So forget those Greece worries and the news that Spain's debt rating joined Portugal in going south. The Fed has provided the bulls some reassurance that we can continue to ride high on a sea of easy money. Still one wonders whether the Fed would have tinkered with the extended period language if it were not for the fact that that debt brush fire in Greece was not spreading like a wildfire. Did the strong upbeat language describing the economy the feds their way of saying that if it were not for the EU we would be more aggressive in laying out an exit strategy from this stimulus crapulence?

Speaking crapulence the United States is still drunk with crude oil supply. The EIA reported some surprise as far as the product end but crude the supplies continue to rise. The EIA said that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.9 million barrels from the previous week. At 357.8 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.2 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 2.9 million barrels, and are above the upper boundary of the average range for this time of year. According to Barbara Powell at Bloomberg that puts supplies of crude 5.1% above the five-year average, gas supply 6.6% above the five-year average and distillates 27.2% above the five-year average.

If you think your gas prices are high then it is a good thing that you that you do not live in McGrath, Alaska. Gas prices there spiked to a whopping to $9.20 a gallon! The AP reported that the residents of McGrath, Alaska, saw their gas prices jump by that amount in one night. The price at the only pump in the remote town 415 miles northwest of Anchorage went from $6 a gallon Friday to $9.20 the next day.

Crowley Petroleum Distribution says it was forced to raise the price because the winter nearly drained the town's supply, and the only option was to fly in more fuel. The cost increase is the difference between flying the gasoline and shipping it on a barge. Crowley says it won't be able to send a barge until June at the earliest.

Even the most steadfast oil bulls are coming around to my way of thinking and that is to try to play the ranges instead of being just stubbornly bullish or bearish for that matter. In fact many commodities have been giving us very wide ranges and if you can buy or sell near the high and low of those ranges you can perhaps do very well. We have been giving numbers on projecting levels on both ends. Tonight Pail Kavanaugh and I will be giving a webinar tonight on the strategy as well as an outlook on oil and other markets.

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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