The New Bull Run
Did you miss the old commodity bull market? Well its back! Back by popular demand, the commodity bulls are coming back out of hiding. Recession fears? What recession? As ADP jobs data and big draws in oil supply seem to suggest, the talk of a recession may have been greatly exaggerated. Ok, well maybe not greatly exaggerated but exaggerated nonetheless. We saw a dramatic key reversal bottom in oil that was egged on by some very surprising drops in supply. The Energy Information Agency helped inspire a market that was already feeling better about the US economy and increasing hopes that Europe would do what it needs to do to increase liquidity for their Greek burdened European banks.
Oh sure, the drawdowns in energy supply from the Energy Information Agency report had a lot to do with a big drop in imports of over a million barrels a day, drops in the Gulf coast and seasonal factors, but if you look beyond that, there are signs that oil demand is back on the upswing. The EIA reported U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.7 million barrels from the previous week. At 336.3 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.1 million barrels last week and are above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.7 million barrels last week and are in the upper limit of the average range for this time of year. Propane/propylene inventories increased by 1.2 million barrels last week and are below the lower limit of the average range. Total commercial petroleum inventories decreased by 4.6 million barrels last week. Total products supplied over the last four-week period have averaged just under 19.0 million barrels per day, down by 1.3 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged 8.9 million barrels per day, down by 1.7 percent from the same period last year. Distillate fuel product supplied has averaged about 3.9 million barrels per day over the last four weeks, up by 2.0 percent from the same period last year. Jet fuel product supplied is 2.9 percent lower over the last four weeks compared to the same four-week period last year.
While demand still lags year ago levels, the numbers are suggesting a bit of a demand surge. Perhaps the big break in the prices at the pump is helping and the fact that the US manufacturing sector and auto sales are rebounding contribute as well. More and more it is feeling like a bottom in energy.
A bottom not only in oil, but across the commodity spectrum. Copper rebounded from deep in bear market territory and gold seemed to rebound sharply from its test just below the $1,600 per once area. Cattle and hogs are surging, inspired by tight supply and very strong Chinese's demand. Now if the market could feel more confident about the Eurozone, we could perhaps see a big rebound. The man that has caused more major one day commodity market moves, none other than Jean Claude Trichet, is scheduled to speak today! Will we see more sparks?!
Jean Claude, the commodity markets are going to miss you and are prepared for a big move in your final press conference as ECB Head! Mr. Trichet in past press conferences has caused limit moves in oil, both up and down, and my bet is that he will feed the new baby bull market. So would that make it a calf market? The Eurozone decision to raise rates in recent months show that the ECB has a narrow view on how inflation might be created and has ignored the fact that their inflation fighting policies as far as commodities have gone, have had the opposite effect. The ECB is not expected to do anything with rates though some feel that the ECB should lower rates or perhaps announce some form of quantitative easing to stimulate what seems to be a faltering EU economy. Can Jean Claude restore the confidence in the EU that has been lacking due to the lack of decisive action on the EU banks? Every commodity bull is waiting to find out.
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 firstname.lastname@example.org.