Oil sees relief rally after API release

Quote of the Day

You are not a pawn in the chess game of life, you are the mover of the pieces.

White Eagle

Yesterday was yet again another risk off day in the world of oil and other commodities. About the only commodities that were able to hold onto gains were in the agricultural sector as the Mississippi River floods and opening of the spillway have definitely impacted this year's crops. In addition to the above, the market is becoming more and more concerned that the US economy is growing at only a snail's pace and as such industrial related consumption is likely to underperform most all of the forward projections...including the EIA Short Term Energy Outlook. Yesterday the latest industrial production numbers came in unchanged for April after increasing 0.7% in March while new home construction numbers plunged yet again. Both indicators suggest that the US economic recovery is slowing down rather than gaining any upside momentum.

Although the slowing of the US economy contributed to yesterday's selling, it is also contributing to the recovery in prices overnight as it has resulted in the US dollar moving back in the defensive as the economic slowing points to the US Central Bank continuing to move forward with its accommodative monetary policy even after QE 2 ends in June. In fact some are even starting to believe that the US Fed may embark on another variation of quantitative easing after the end of QE2. The Fed has not signaled that view as of yet but one thing that seems clear is the Fed is not likely to raise short term interest rates anytime soon or as long as there is still a huge unemployment problem in the US (the headline rate is still at 9%).

Further pushing the US dollar overnight is the easing concerns over the sovereign debt issues in Europe and a bit of a relief rally as progress was made yesterday insofar as the Portugal bailout program even though there is turmoil at the IMF. Also the EU Economic and Monetary Commissioner indicated today that Europe's recovery is becoming more solid and is undeterred by the tensions surrounding the sovereign debt issues. The recovery is becoming more solid and self-sustaining. This is a positive for the euro, a negative for the US dollar and thus supportive for higher oil prices as well as other commodities. At least for this morning the lower US dollar is a positive for the relief rally currently in place in the oil complex.

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