Oil prices are staying strong, not so much because supplies are tight, but because of global economic stimulus. Overnight comments by Chicago Fed President Charles Evens seemed to damper the Fed Minutes inspired expectations that the Fed could start raising rates before the end of this year. Ben Bernanke speaks later and it seems that the Chicago Fed President may be laying the ground work. Mr. Evens said that the Fed would start to slow down asset purchases under its quantitative easing program if the U.S. economy creates about 200,000 jobs a month for several months. He also suggested that high unemployment indicate and sluggish growth means that more accommodation is needed. Now bring on the Bernanke Man.
The oil market also will have to put in perspective what should be another large increase in supply. Crude should see a significant increase as the first non-holiday interrupted report of the year is released by the Energy Information Administration. Look for crude to be up by 3.8 million barrels, gasoline up by 2.7 and distillates up by 2.5.
Cushing supply should also rise but we will start to see more oil moving out as the reversal of the Seaway pipeline is completed. Soon we will see 400,000 barrels a day out of Cushing. That will take away the supply glut. This reversal and the increase in domestic production is one of the reasons the United States will see their imports drop to a 25-year low next year.
Reuters is reporting that the average price for a gallon of regular gasoline in the United States rose in the last three weeks for the first time since early October, as U.S. refineries passed on the cost of higher crude oil prices, according to a widely followed survey released on Sunday. Gasoline prices averaged $3.3247 per gallon on Jan. 6, up 6.68 cents from Dec. 21, said Trilby Lundberg, editor of the Lundberg Survey. Prices had declined for the prior 11 weeks, falling 57.96 cents since touching near $3.84 on Oct. 5. "This rise is a partial pass-through of higher crude oil prices that U.S. refiners are paying," Lundberg said, noting that more price increases may be coming.