Oil bounced back on an array of supportive news, yet the most supportive news over all was the snap back across the commodity spectrum. Led by the grain markets and the fears of dwindling supplies, the commodities complex seemed to be the leaders not the followers across the finical universe. The commodities were not following the dollar or the Euro, they were leading them. The question is whether or not commodities can continue to lead as many have seen clear technical damage to their sharp uptrends in recent weeks.
Some of the factors that led to the oil rally really started long before the Energy Information Agency supply report. The API report the night before signaled that perhaps the EIA report was not going to be that bearish. The complex surged after a surprise drawdown in gasoline supply. Then overnight comments from some IMF officials basically praising Greece for the reforms they have taken seemed to suggest that the IMF was likely to come to Greece's aid.
That brought the VIX index down sharply and the commodity traders seemed confident that we could put Greece behind us, and we know that if that happens the Euro will strengthen against the dollar again driving traders back into that popular profitable trade. Still, because of the more subdued reaction on the currency front and with the commodities leading the way, it seems that forex traders are a bit more skeptical that Greece can continue to get kicked down the road.
Then you had the late weather reports for the grain complex. In the largest corn producing states it seems that this weekend's planting is going to be washed out. Add to that drought fears in Europe and Russia and lost acres due to the Mississippi floods, it seems that traders are now very concerned about global supply. This hard boost in commodities really was led by the grains that helped feed overall bullish momentum.
That brings us back to oil and the much anticipated weekly petroleum status report. The EIA helped feed into the bullish momentum by reporting a drawdown in Cushing Oklahoma supply and a disappointing build in gasoline. Add to that some hype over the wildfires in Canada and you had more than a few excuses to participate in the broad based commodity rally. Gasoline production did rise averaging 9.1 million barrels per day and refinery runs increased to 83.2 percent. Overall crude supply was unchanged from the previous week and gasoline inventories increased by 0.1 million barrels. Crude import fell as well averaging around 8.6 million barrels per day last week, down by 394 thousand barrels per day. The numbers, while supportive, would not have had the same price impact if it were not for some of the grander commodity market forces at play.