You know about the old bond vigilantes. Bond traders that hijack the bond market and the yield curve. You know when traders drive the bond market in a direction that the Fed and other Central bankers don’t want it to go. For example, earlier in the year the market was pricing in a euphoric economic recovery after some better than expected economic data and the Treasuries were pricing in a much faster increase in interest rates. Fed Chairman Big Ben Bernanke had to rein them in. Well Ben and some sub-par jobs data that is. The bond vigilantes have in the past forced the Fed to raise rates or at least drive yields regardless of what the Fed does or other central banker around the globe.
Yet what we saw yesterday and in recent days was kind of the opposite. While no quantitative easing was actually promised, the QE vigilantes have already started pricing QE in. We saw it not only in the Treasury securities but across the commodity spectrum. In fact the first QE vigilantes were the gold bugs that last week decided to look beyond the deflationary aspects of Greece and Spain and look ahead to the magic of the printing press. Treasuries also fell in line falling on the futures and bouncing back off of record low yields on the long end of the curve. The safe haven yen and dollar topped and even the beleaguered euro got up off the mat.
The QE vigilantes realized Monday after the disastrous jobs report and the free falling stocks and commodities markets that based on past performance, global central banks would not stand idly by while the global economy sank into a deflationary depression. The sell off on Friday was ominous and market conditions and the QE vigilantes would soon force the hands of global leaders as the markets demanded action.
Yesterday the QE vigilantes did get a scare after the Fed Minutes seem to suggest that somehow the US economy was not as bad as the jobs report seemed to suggest. That shook their confidence a bit but that was only until powerful Fed Vice Chair Janet Yellen warned of significant downside risks to the economy. Yellen acquiesced to the QE vigilantes by saying that it, "May well be appropriate to insure against adverse shocks that could push the economy into territory where self-reinforcing downward spiral of economic weakness would be difficult to arrest." See that is what the gold bugs were saying last week. Now the key will be if big bad Ben Bernanke agrees when he testifies today.
The oil market of course knows that QE is bullish. Not only does it break the dollar, making oil more expensive, but it should be as stimulative to the economy as an interest rate cut increasing demand. We saw the demand by refiners from oil surge last week according to the Energy Information Agency weekly status report. Refinery runs hit 91 giving us our first crude supply decline in 11 weeks. Still though, Cushing stockpiles rose more than expected hitting a record high, but with refiners enjoying much better margins because of the huge drop in crude prices, oil products like gas and diesel should rise significantly in coming weeks.
Summary of Weekly Petroleum Data for the Week Ending June 1, 2012
U.S. crude oil refinery inputs averaged just under 15.5 million barrels per day during the week ending June 1, 299,000 barrels per day above the previous week’s average. Refineries operated at 91.0 percent of their operable capacity last week. Gasoline production decreased last week, averaging about 9.1 million barrels per day. Distillate fuel production increased last week, averaging nearly 4.7 million barrels per day.
U.S. crude oil imports averaged about 9.0 million barrels per day last week, down by 99,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged just under 8.9 million barrels per day, 111,000 barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 836 thousand barrels per day. Distillate fuel imports averaged 98 thousand barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.1 million barrels from the previous week. At 384.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.3 million barrels last week and are in the lower limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 2.3 million barrels last week and are in the lower limit of the average range for this time of year. Propane/propylene inventories increased by 2.3 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 6.8 million barrels last week.
Total products supplied over the last four-week period have averaged about 18.6 million barrels per day, down by 2.0 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged just under 8.8 million barrels per day, down by 4.0 percent from the same period last year. Distillate fuel product supplied has averaged 3.6 million barrels per day over the last four weeks, down by 5.0 percent from the same period last year. Jet fuel product supplied is 1.4 percent lower over the last four weeks compared to the same four-week period last year.
