Crude oil is proving resilient despite lack of activity in front month contract, reports Phil Flynn.
Markets on Wednesday focused on the race to zero. The Federal Reserve’s Open Markets Committee (FOMC) announce their decision to keep rates zero bound, and basically said they will “do whatever it takes” to achieve stability and foster a rebound in growth after what most likely will be an ugly GDP. Expectations say that the U.S. economy contracted an annual rate of 5% or more in the January-March quarter.
While many clearing firms and oil analysts were convinced that the front-month crude contract was destined to go to zero, somehow zero is getting further away. Despite fears that oil storage space, conventional and unconventional, is running out, the move in the front-month is defying the mantra that the contract had no choice but to trade negatively again. Crude is soaring despite reports that the USO oil ETF has been forced out of the front-month futures and reports that many Futures Commission Merchants are not allowing trades in the front-month June crude contract.
Most speculative traders were forced out of the front month contract, and it seems that the market is finding buyers for some of those barrels of excess crude. Expectations are that the reopening of the U.S. economy may lessen the impact of overflowing oil storage.
Or perhaps it was data from the American Petroleum Institute (API) that showed oil going into Cushing, Oklahoma is slowing that gave crude oil a lift. The API showed a whopping 9.978 million barrel build in crude supply that was, surprisingly enough, less than some people had predicted. The 2.486 million barrel build in Cushing, Oklahoma was less than expected and is a sign that oil destined for Cushing is going elsewhere.
The API also reported a 1.108 drop in gasoline supply. Gas demand drops have leveled off and are on the rise, and retail gas prices may have hit bottom as well and are starting to rise. Still, a massive 5.462 million barrel increase in distillate supply is a reminder that the economy is still far from back to normal.
Oil also bounced on reports of an explosion on an oil tanker in the northern Syrian city of Afrin. The news is raising concern that desperation over low oil prices may cause some increased tension between oil-producing nations.
We know there are increased tensions in the meat industry. President Trump used an executive order to keep processing plants open and may alleviate concerns of meat shortages. The reality is that right now, there is no shortage of meat. There is plenty of supply in the chain. Yet with more processing plants closing, it could have led to shortages of beef, pork and poultry. Hog prices, that had been pummeled, have since rebounded. Somehow packers once again are making big bucks no matter what seems to happen. Cattle ranchers and pork producers are struggling.
Oil products look like they are bottoming. Refinery cutbacks may take its toll as product demand starts to rise. The gasoline market may save the entire complex from going into the abyss again.
The Fed should do whatever it takes and that should help boost commodities. Volatility seems to be coming back in a bit. Still, we could see some wild moves post Fed.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
Not a Subscriber but want to be? Click Here!
