Oil, Fed Giving Mixed Signals

Oil prices found some stability after a drawdown in weekly supply and a better U.S. economic outlook, yet the petroleum market seems to be telling a different story. Oil seemed to gather support after the ADP jobs data came in better than expected on Wednesday and the trade deficit numbers, partly inspired by oil exports, cheered the market. Yet big inventory builds in distillate and gasoline seem to be telling a different story as demand fell hard even as the economy is supposed to be getting better.

Crude oil inventories were a big miss versus market expectations as supply fell by 3.06 million barrels last week, while the traders were expecting an increase. Yet a stunning 11.20 million barrel build in distillate and a whopping 8.11 million barrel build in gasoline supply had to raise some questions about demand. Gasoline stocks have reached their highest level since February 2011, while distillate stocks are at their highest since March 2012. Normally if gas and diesel prices fall it should be good for demand, as long as they are falling for the right reasons. Yet instead of demand exploding, it actually fell.  The gasoline demand figure, as measured by the EIA, fell by 805,000 barrels per day to 8.809 million barrels per day.  Distillate demand figure was off by 1.37 million barrels per day to 2.865 million barrel per day. So if the economy is so strong why is oil demand falling?   The Federal Reserve Open Market Committee minutes also sent mixed signals. While the Fed made it clear that being patient on interest rates means no increase before late April, sort of like love means never having to say you’re sorry. They did show some concern of deflationary forces growing overseas and at home. Some in the Fed seemed worried that that inflation could stay below their 2% objective. They also raised concerns that if the Fed raised rates while inflation was running below that area it could hurt the Fed's credibility.   Although the minutes expressed optimism that by the time the Fed was getting ready to raise rates in the next two meetings that inflation would be back near their 2% target. Of course when they wrote those sentiments in the meeting oil was trading $7 to $10 higher than it is trading now.   Other commodity news: weak demand fears drive copper to a three month low.  Bank of England keeps rates unchanged, as expected.   MarketWatch Says that I am a must follow in 2015 on Twitter! http://www.marketwatch.com/(S(rnrsydaynixa5x55oiibxm45))/story/these-twitter-pros-are-2015s-must-follows-2014-12-19?pagenumber=2.

Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.

The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks.