Fed Chairman Ben Bernanke does his best impression of a one-handed economist. On one hand Ben sends gold and stocks soaring by saying that a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further! But on the other hand he gave the impression that the Fed could start "tapering" off bond purchases after the next couple of Fed meetings! In like a dove and out like a hawk, sending gold and stocks on a wild ride. After a classic pop gold then dropped as the stock market traders were left scratching their collective heads. Of course after the Fed minutes, they gave into the outside market pressure. It seems some Fed officials want to reduce QE as early as the June meeting if the economic data received by that time showed evidence of sufficiently strong and sustained growth.
So the Fed is trying to separate bond buying and mortgage-backed security buying from monetary policy, or in other words, funds rate at a target of zero while traders see them as one and the same. Like I said before, the Fed changing its amount in bond buying is like lowering and raising interest rates in a negative rate environment. Later in the day the Fed minutes added to the reversal when one Fed member dared to suggest that the amount of purchases could be changed at the next FOMC meeting.
Oh yeah, Ben Bernanke also bragged about the central bank's track record on fighting inflation. Take that Angola, Mexico and Argentina!
The flip flop caused some much needed volatility as gold soared and dropped like a rock! Yet despite the drop today it is rebounding as U.S. stocks look a little less appealing with more uncertainty. Copper also got crushed, but perhaps more on the Chinese manufacturing data in the world's largest copper consumer. Reuters news reports "China's factory activity shrank for the first time in seven months in May as new orders fell, a preliminary survey of purchasing managers showed, adding to concerns that a recovery in the world's second-largest economy is sputtering. The flash HSBC Purchasing Managers' Index for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first since October. The final HSBC PMI stood at 50.4 in April. A sub-index measuring overall new orders dropped to 49.5, the lowest reading since September, suggesting China's domestic economy is not strong enough to offset soft external demand. "
Of course that does not bode well for crude demand! I told you we were getting close to a top. But while the market focuses of the possibility of softening demand because of the Fed and China there was one area where demand actually improved! That was gasoline! Despite the recent run-up in price, implied demand from the Energy Information Administration actually rose. That was the one bright spot in an otherwise mostly bearish inventory report.
The EIA reported that gasoline demand increased by 449,000 barrels, 8.79 million barrels a day, giving hope that we could see demand actually out perform some predictions over this Memorial Day weekend.
Bloomberg News reported that "The number of Americans driving during the Memorial Day holiday weekend will rise 0.3% from a year earlier to the highest level in eight years, according to a forecast by AAA. Approximately 31.2 million Americans plan to drive to their destinations, up from 31.1 million who drove last year, according to Heathrow, Florida-based AAA, the biggest U.S. motoring organization. The number of air travelers will fall 8% to 2.3 million, a four-year low. AAA estimated 34.8 million Americans will travel 50 miles or more from home during the four days ending on the May 27 holiday. That's down 0.9% from 35.1 million a year ago, a drop attributed to consumer unease about the economy." Of course if we have good weather that can always give us a gasoline demand boost.
The EIA also reported that U.S. crude oil refinery inputs averaged over 15.2 million barrels per day during the week ending May 17, 2013, 4 thousand barrels per day below the previous week's average. Refineries operated at 87.3% of their operable capacity last week. Gasoline production increased last week, averaging over 9.2 million barrels per day. Distillate fuel production increased last week, averaging 4.8 million barrels per day. U.S. crude oil imports averaged over 8.1 million barrels per day last week, up by 507 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 7.9 million barrels per day, 932 thousand barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 1.1 million barrels per day. Distillate fuel imports averaged 101 thousand barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.3 million barrels from the previous week. At 394.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.0 million barrels last week and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.1 million barrels last week and remained in the lower half of the average range for this time of year.
Propane/propylene inventories increased by 2.2 million barrels last week, and are in the middle of the average range. Total commercial petroleum inventories increased by 4.2 million barrels last week. Total products supplied over the last four-week period have averaged 18.6 million barrels per day, down by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied has averaged 8.5 million barrels per day, down by 3.3% from the same period last year. Distillate fuel product supplied has averaged 3.8 million barrels per day over the last four weeks, up by 2.5% from the same period last year. Jet fuel product supplied is 6.2% higher over the last four weeks compared to the same four-week period last year.