Forget the fact that gasoline supplies surprisingly rose on the East Coast in yesterday's Energy Information Administration supply report, it seems that talk of a gasoline squeeze play kept the RBOB rocking! An explosive move to the upside and the expiration of the February contract mean that we could see another explosive move today.
Overall gas supply came in nationally as expected with a draw of 956,000 barrels, yet there were still some surprises. On the East Coast, or pad 1, gas supply actually rose by 1.24 million barrels but that was not enough to cool the talk that some buyers were caught short of supply and will have to buy into a heavily bid market place. Besides, even with the East Coast build, supply is still 10% below the five-year average.
Crude supply surged with big builds on the East and West and Gulf Coasts. Most think the build won’t last and it failed to dampen enthusiasm especially because the RBOB market was strong. Yet it was a surprising increase in refinery runs of 1.4% that had some heads scratching especially because of all of the reports of refinery maintenance and turmoil.
What did dampen enthusiasm was the US GDP that fell 0.1% in the fourth quarter. While shocked traders soon said that the numbers were an aberration, they still raised concerns. Consumer spending was strong despite all of the fiscal cliff negotiation nonsense. We saw a large drop in defense spending, which declined at an annual rate of 22.2%, the biggest fall since 1972 and that, in large part, explains a big part of the drop. Add in Hurricane Sandy. Still after the drop there was no way that the Fed could suggest that QE would be ending anytime soon. While the Fed said that the pullback in growth would be temporary, they sent a strong signal that QE would not end as long as inflation stayed somewhat below 2%. Fed Fund futures pushed back expectations of a rate increase to mid-2014, after the July of 2014 meeting.
Geo-political concerns are also still high after Israeli warplanes carried out an airstrike inside Syrian territory. It was reported that the target was a convoy that was carrying sophisticated antiaircraft weapons that was being sent to Hezbollah in Lebanon.