Oil breaks higher after surprise inventories, Fed minutes

Let The Printing Begin!

As I wrote yesterday, commodity markets are going crazy and so is the Federal Reserve, adding that final bullish element to an already bullish market place. The Fed minutes gave credence to what that charts were already signaling and that was that QE 3d may be right around the corner.

The minutes suggested that within the walls of the Fed, the opposition to a radical move may be softening as it said that many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. In other words, it seems that even the most hawkish members of the Fed realize that with the fiscal cliff just up ahead and a contentious political environment, it will be up to the Fed to try to print our way out of the abyss.

Those sentiments confirmed to the gold and silver traders that it was time to explode on the upside and oil to break through critical resistance.

Oil imports plunged, falling dramatically catching traders by surprise and strong refinery runs led to a big drop in crude supply. The Energy Information Administration reported that U.S. commercial crude oil inventories decreased by 5.4 million barrels.

When it comes to imports, in the big picture they may continue to fall. Bloomberg News reports that boom in oil production from the shale formations of North Dakota and Texas has the U.S. on a course to cut its reliance on imported crude oil to about 42 percent this year, the lowest level in two decades. Dependence on crude purchased from foreign countries is on a pace to decline from last year, Adam Sieminski, the head of the U.S. Energy Information Administration, said during a Bloomberg Government lunch yesterday in Washington. Higher oil prices and an increased use of a drilling technique known as hydraulic fracturing has producers including Continental Resources Inc., Marathon Oil Corp. and Hess Corp. boosting production from oil-rich geologic formations. Hydraulic fracturing, or fracking, involves pumping millions of gallons of water into the ground to free oil and natural gas and has been widely used in shale-rock formations such as the Bakken of North Dakota and Eagle Ford in Texas.

The EIA reported that motor gasoline inventories hit by refining issues and other problems decreased by 1.0 million barrels last week and are in the lower half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 1.0 million barrels last week and are below the lower limit of the average range for this time of year. Propane/propylene inventories increased by 1.9 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 3.0 million barrels last week.

The other issues this week is whether or not soon to be Hurricane Isaac and a tropical depression number 10 to be named later, will head into the Gulf of Mexico. We already know that imports will be slowed again but with more domestic production, the market may not be as worried as it normally would be. U.S. crude oil imports averaged 8.2 million barrels per day last week, down by 510.

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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