Silver is soaring once again helping to support oil as the market is giddy about the prospects of Mario Draghi’ s sanitized bond buying! Or perhaps should we call it central bank money laundering. You see, it isn’t really money printing as long as you remove one euro from the money supply for every bond that you buy. Seeing that the plan is to allow the ECB to by unlimited treasuries on the short end of the yield curve three years or less in unlimited quantities, that should make euros scarce and make them more valuable.
Of course risk traders know this means that commodities should rally. Silver’s saucer bottom is one of the most bullish formations for that market and seems again to be living up to its reputation. Gold is also making a similar move, yet oil’s rally has been a bit subdued.
It seems that oil was a bit ahead of itself and is reluctant to go higher with weak global economic data. That is in spite of the big drawdowns that we have seen in crude as the market is betting that weak short term demand and the transitory nature of production and refinery outages will be met with weak demand. The American Petroleum Institute did report that US crude supply fell by 7.2 million barrels, while gasoline supply fell a less than spectacular 2.3 million barrels and distillates only by 132,000 barrels.
Yet the weak demand argument might not hold as much water when you consider the impressive numbers for the MasterCard Spending Pulse report. As reported by Bloomberg News, “U.S. gasoline demand rose 1.9% last week to a 14-week high as Americans filled their tanks for the Labor Day holiday weekend, according to data from MasterCard Inc. Drivers bought 9.11 million barrels a day of gasoline in the week ended Aug. 31, up from 8.94 million the prior week, MasterCard’s SpendingPulse report showed. Last week’s demand reached the highest level since May 25. Fuel consumption was 4.2% above the year-earlier level, after being down the previous 52 weeks. The gain was primarily the result of being compared with a week in 2011 in which Hurricane Irene disrupted travel plans, said John Gamel, director of economic analysis for SpendingPulse.
Still year to date gasoline demand is 4.2% below 2011. Fuel use over the previous four weeks fell 1.1% below the same period in 2011, a record 76th consecutive drop in that measure. The highest prices were on the West Coast, where the average rose 4 cents to $4.04 a gallon. The lowest average was on the Gulf Coast, where a gallon gained 9 cents to $3.63.