It is one thing to be optimistic about an economic recovery and another thing to be giddy about it. Oil and petroleum prices surged on what most people say is a reaction to a rebounding stock market and a sudden case of economic enthusiasm. Of course there is a possibility that the majority of the market participants were drinking or perhaps taking happy pills, or maybe some players expected the bullish energy news that we got after the close.
A major drop in oil imports led to a major drop in crude supplies as the American Petroleum Institute blindsided some in the marketplace by reporting a whopping 6.13 million barrels. No, that is not a typo, even though I am the king of typos. This was a shocking drop that makes you wonder, Where did all the oil go? Maybe those pirates are getting more oil tankers than we realize. The API also reported that distillate inventories rose by a less-than-shocking 1.53 million barrels and fall in gasoline supply of 847,000 barrels. Of course we will wait to see if the Department of Energy concurs with this mysterious drop.
The other culprit responsible for the oil move was the dollar. A day after traders looked to the dollar for safe haven from the ills in the Asian market, all of a sudden yesterday they got their risk appetite back. Today the dollar is being influenced partly by renewed weakness in Asia but also by the Bank of England minutes that detail their surprise expansion of quantitative easing. Bloomberg News says today that the British pound fell against the dollar, paring its biggest gain in more than two weeks yesterday. Bloomberg says the U.K. currency also declined against the Euro and the yen after a plunge in Chinese stocks spurred demand for safety. I still say the move by the BOE was in part due to the concern that commodity price inflation could have on an economic recovery. I think the BOE is aware of how exchange rate differentials could help or derail a global economic recovery. All nine members voted for rate policy; six of nine voted for QE.
Republished with permission from Alaron's Energy Report Daily.