Fed Chairman Ben Bernanke in his historic first post-Fed meeting press conference stunned the world when he said that the Fed can't create oil! No wonder prices soared after the meeting. This was a shock to some investors who thought that the Fed was in their two day meeting creating oil out of spent dollar bills. Boy this transparency thing really takes away from the Fed mystique. Well, don't feel bad Ben because while the Fed can't create oil you sure can create one heck of a bull market in the global economy markets.
Big Bad Ben and his band of Federal Reserve doves continue to say low rates of resource utilization, subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels for the federal funds rate for an extended period. That also means of course that commodities are going to continue to be bullish for an extended period of time. Thank you Mr. Bernanke!
Mr. Bernanke comments and admission that the Fed can't create oil was a veiled shot at the Obama administration who obviously has the power to create more oil. The Fed feels increasing pressure of carrying the US economy on its back while the Obama administration has done nothing to help bring down energy prices. Drilling moratoriums and slow permitting processes has hamstrung the US oil industry and slowed production and increased price. Also the sky rocketing budget and the risk of a credit downgrade has left it up to the Fed to do the heavy lifting.
Mr. Bernanke, in addressing oil prices and food inflation, says, "We don't create the growth rates of emerging market economies." Well that is not exactly true. QE2 has exported inflation to the emerging markets. As the dollar falls, money surges to the emerging markets. It is true that China and their currency control have forced the Fed's hand. The Fed felt it had no choice (but to print more money - QE2) as our economy went into a malaise and the U.S. government moved slow to attack a rising budget deficit and at the same time face an imbalance as the Chinese continue to manipulate their currency.
Well perhaps Mr. Bernanke does not have any control over oil and commodity price, yet the markets seem to differ. Post-Fed statement, commodities soared as the words extended period were music to gold, silver and oil trader's ears. Oil rallied even after a surprise build in the weekly Energy Information Agency supply report.
The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by a whopping 6.2 million barrels. The build was a result of U.S. crude oil imports that averaged just less than 9.3 million barrels per day last week, up by 1.2 million barrels per day from the previous week. The increase in supply may be a result of inversed OPEC production and slow refinery runs. The EIA reported that US crude oil refinery inputs averaged nearly 14.1 million barrels per day, 27 thousand barrels per day below the previous week's average. Refineries operated at 82.7 percent of their operable capacity last week.
Oil prices dutifully fell after the report, yet came back as the market was getting ready for that oil price friendly Fed meeting. It may also have something to do with the fact that gas supply fell for what seems like the millionth week in a row. The EIA said that total motor gasoline inventories decreased by 2.5 million barrels last week and are in the lower limit of the average range. Refinery issues played a part as gasoline production fell averaging 8.8 million barrels per day.
High prices and lousy weather has cut into demand as the EIA said that over the last four weeks, motor gasoline product supplied has averaged about 9.1 million barrels per day, down by 1.6 percent from the same period last year. Still the drawdown in supply means that the increase in retail gas price is not yet over. Add to that the impact of the Fed decision, and you might want to fill your tank today.
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.
