We have the two meetings. The Federal Reserve starts a two day meeting today and OPEC is flying to Vienna to start jawboning ahead of their official meeting tomorrow. One is important for oil traders and one is not. Sorry OPEC. Despite the fact that OPEC is going to try to pick a new secretary general the truth is that the Fed will have much more sway over the price of oil. With the combination of resurgence in U.S. oil production and the fact the U.S. central bank and their printing press is the only think keeping the economy afloat, it only stands to reason.
The Fed is going to have to appear aggressive especially with the economy teetering on the fiscal cliff. Oil is looking to the Fed to keep the printing presses going and traders expect that the Fed will continue to buy bonds despite the ending of the twist. More bong buying will weaken the dollar and hopefully pump up oil demand. The Fed needs to provide cover.
Of course the Fed can’t do it on their own, if the Fed fails to address the twist and buy more bonds, oil more than likely will break to the downside. On the upside with the Fed and unlimited QE it will be hard to see a scenario where the fed can inspire a major rally. Perhaps a relief rally, but even then it will be back to cliff watching and worrying about Europe and China demand and maybe even OPEC.
Dow Jones reports “pressure on heavy, sour Middle East grades may ease somewhat following a steady recovery in fuel oil cracks over the last week. Market focus will be on the OPEC meeting in Vienna starting tomorrow, where the cartel is expected to discuss output quotas. While OPEC is widely expected to leave its output ceiling unchanged, any indications of potential cuts in the future, especially by Saudi Arabia, could support premiums.”