Given the bearishness of recent crude oil supply reports it was not a surprise that crude oil has fallen back below the $30 level. But the rebound from its $26.19 low certainly felt, to many in the industry, like a bottom was reached. It may have been; after all the rebound occurred following an equally bearish supply report—climbing the proverbial wall of worry. However, last week’s rally occurred as the U.S. dollar was under considerable stress. Given how far the market had already fallen, it was fair to see bearish reports as built into the price and crude rallying on dollar weakness.

But something funny has happened in the last two days. Crude has dropped back below $30 while the dollar has shown considerable weakness (see chart below). In fact, since Thursday’s highs crude has dropped more than $5 while the U.S. Dollar Index has fallen sharply. It takes tremendous conviction for crude bears to sell in the face of a dollar weakness. If the market can drop roughly15% in that environment, no low is safe.

WILL FED TAKE YEAR OFF?

While the crude/dollar chart illustrates that the crude oil purge may not be over, another chart caught our attention.

The main drivers of crude’s recent weakness is the sell-off in U.S. equities, continued  weakness in China and a general slowing global economy. Last week’s less that sterling nonfarm payroll  growth led some to speculate the Federal Reserve would not be able to follow last December’s rate increase with another 25 basis point increase at its March meeting.

A March increase was never a certainty but those suggesting—including several Fed governors via their dot-plot—a more aggressive stance in 2016 counted on a March increase. The general consensus was that the Fed would increase rates somewhere between 50 and 100 basis points in 2016. Assuming the Fed would only increase rates during meetings with an accompanying press conference, it would be necessary for them to raise rates after the March meeting to stay on that more aggressive track.

But ever since equities began heading south in January, Fed Funds futures have rallied. In fact, the market on Fed Funds, which forecasted a slower pace of tightening,  is pricing in virtually no rate hikes in 2016 (see chart).

Fed Chair Yellen is scheduled to speak to Congress on Wednesday. It would be interesting hear what she has to say.