Commodities Take A Hit After The Fed's Talk Of Tapering

August 19, 2021 12:30 PM
Oil prices got hit in risk-off mode by the Fed’s suggestion that tapering could happen this year
Oil demand concerns over Covid-19 flareups are overshadowing solid demand numbers in the U.S.
The selling looks like we’re getting to the capitulation point
The Energy Report

The Energy Report

The Phil Flynn Energy Report 

Taper Caper

Oil prices got hit in risk-off mode by the Fed’s suggestion that tapering could happen this year, along with continuing concerns of Covid-19 spread and a lack of confidence in the leader of the free world.

The Washington Examiner reported the following:

President Joe Biden’s decision to withdraw forces from Afghanistan over the objections of other NATO allies has enraged officials in the United Kingdom, stoking distrust and contempt for American foreign policy leadership.

“Now this is a harsh lesson for all of us,” senior British lawmaker Tom Tugendhat, who is chairman of the Foreign Affairs Committee in the House of Commons, told Parliament. “We can set out a vision, clearly articulate it, for reinvigorating our European NATO partners to make sure that we are not dependent on a single ally, on the decision of a single leader, but that we can work together with Japan and Australia, with France and Germany, with partners large and small, and make sure that we hold the line together.”

Those sentiments could reinforce France’s desire for “strategic autonomy” from the United States. French and British foreign policy cooperation has been impeded by acrimonious disputes over the U.K.’s exit from the European Union, but those controversies seem to pale now in comparison to Tugendhat’s self-described “anger, grief, and rage” over Biden’s decision and his barely restrained contempt for the American president’s justification for the chaotic exit.

Oil has also been weak. Demand concerns over Covid-19 flareups are overshadowing solid demand numbers in the U.S., even though there are signs of the summer driving season being past its peak. The total products supplied over the last 4-week period was an impressive 20.8 million barrels per day (bpd), up by 13.2% from the same period last year. That’s a demand number akin to pre-pandemic metrics. 

Over the past 4 weeks, motor gasoline product supplied averaged 9.5 million bpd, up by 8.4% from the same period last year. Distillate fuel product supplied averaged 4.0 million bpd over the past 4 weeks, up by 10.9% from the same period last year. U.S. oil production also ticked up to 11.4 million, but it’s still a far cry from where we were pre-pandemic.

If Covid-19 weren’t enough to sink us, the Fed news was. MarketWatch reported:

Most of the 19 top Federal Reserve officials said last month that they thought it would be appropriate to start reducing the pace of its asset purchases this year, according to minutes of their policy meeting released on Wednesday. 

These officials said they thought the Fed’s benchmark of “substantial further progress” criterion had been met in terms of inflation and was “close to being satisfied” in terms of the employment goals. 

The Fed is buying $120 billion per month of Treasuries and mortgage-backed securities each month to put downward pressure on long-term interest rates. 

The minutes show that there were sharp divisions on the tapering questions. It wasn’t clear whether the Fed would be prepared to announce a tapering at the next meeting in September.

That announcement put a damper across the commodity spectrum. The selling looks like we’re getting to the capitulation point! Look to use the weakness to lock in winter hedges or speculate on some calls.

Don’t miss out on my wildly popular trade levels on all major markets, as well as special subscriber-only updates. Call me at 888-264-5665 or email me at pflynn@pricegroup.com.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.