Oil rallies after Fed’s economy signals

Dollar Drop and Oil Rocks

Oil drums Oil drums

QE or no QE? Despite the fact that the Fed says it is on hold with quantitative easing and an immediate announcement of an extension on the “Operation Twist,” the dollar is not buying it. Well at least they are not buying the dollar. The dollar is losing ground as it hits a year low against the Canadian and hit the lowest level on the index since the low of 7879 on April 3rd. While it is possible that the dollar may rebound, you have to wonder why the dollar is acting so weak if the Fed says that the economy will pick up gradually? While the Fed offered no real surprises, it seems that the dollar was hoping for a more upbeat assessment of the US economy or perhaps a more down-beat outlook for Europe but without that, it seems that gradually the risk trade is coming back on.

Oil rebounded and grains are showing strength, in part being led by soybeans and meal on crop concerns. Gold and silver, after some attempts to break out lower, reversed and seems to have put in a near term bottom. So despite the fact that the Fed says no QE, now the market must feel that they can again start betting on a gradual economic recovery. In other words, Ben Bernanke has traders right where he wants them. He sent a message to the Bond Vigilantes to not get ahead of where he wants them to be. Ben may not have control of the economy but he owns the traders and they are dutifully pricing in a gradual economic recovery against the backdrop of low interest rates. The risk trade is back.

That is why oil rallied despite the fact that crude oil inventories increased by 4.0 million barrels. A big surge in imports in oil offset fears about a drop in gasoline supply as the EIA reported that gas fell by 2.2 million barrels. Distillates dropped by 3.1 million barrels.

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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.

 

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