Oil reacted to a bullish weekly Energy Information Administration report right after the Fed seemed to get out of the way. While acknowledging that the economy is indeed getting better, there is no sign that the Fed is getting ready to change policy in the foreseeable future. On top of that, a potential deal between Russia and Cyprus to sell their energy reserves in exchange for a bank bailout could give the bulls a bit of momentum.
Let's start with Cyprus. It seems that the ECB is setting a deadline of Monday to come up with a viable plan that will satisfy both the ECB bank as well as the International Monetary Fund. Of course some think a deal between Russia and Cyprus may be the answer to the question. Reuters is reporting that, "Cyprus and Russia resumed talks Thursday to strike a deal that could include cooperation on banking and natural gas reserves, the Cypriot finance minister told Reuters agency. Finance Minister Michael Sarris said that natural gas reserves from offshore fields surrounding Cyprus that have yet to be developed could be offered as part of the agreement. Any deal with Moscow should be in Russia's best interests too, he said. Sarris extended a stay in Moscow, where Russian officials said he asked for a further €5 billion on top of a five-year extension and lower interest on an existing €2.5-billion loan from Moscow.”
Now yesterday I gave the false impression that Cyprus had sold its rights to Turkey. The correct way to have put that is that the natural gas fields are disputed. As recounted by Bloomberg, "Turkey, invaded the northern part of the island in 1974 after a coup aimed at uniting it with Greece. Later Turkey sent an exploration vessel accompanied by warships and jets to stop Cyprus drilling for oil and gas in 2011. The concern is that a Russian takeover could raise tensions in the region.
The Energy Information Administration put out a bullish report, yet the market wanted to wait to see what the Fed had to say and in a weird way, they both kind of said the same thing that things are improving in the economy as evidenced by demand. The EIA reported a surprise drop in crude stocks to the tune of 1.31 million barrels. This comes against a back drop of a historic surge in U.S. oil production. Gasoline stocks also fell by 1.48 million barrels, which reflected a four week demand number that is 1.5% above a year ago. Distillates also fell by 672,000 barrels.
Yet the market still wants assurances from the Fed that they are going to continue to pump up the economy. The Fed will continue its $85 billion dollar printing party as the turmoil in Europe provided them some additional cover, not to mention the fact that the jobs market is still a far cry from where it needs to be, which in the Fed's eyes is 6.5%. Oh, and they want inflation below 2.5%. Fed Fund Futures seem to agree with 13 of the 19 policymakers that still think it will be appropriate to keep rates steady until sometime in 2015.
It's a cold day in… well Chicago. It's 12 degrees on the car thermometer and that has to be registering on the natural gas market. Today the market will get the withdrawal report. Average guess is in the 60s but I think that the cold and the strong power demand should give us a draw closer to 99.