Weekly EIA US oil inventories -4584K vs -2082K expected

  • Prior was -240K
  • Gasoline -719K vs +1606K
  • Distillates -2853K vs +688K
  • Refinery utilization unchanged vs +0.5% exp
  • Cushing -4584K vs -240K prior

API data released late yesterday showed:

  • Crude -815K
  • Gasoline +426K
  • Distillates +1016K
  • Cushing +2257K

Just ahead of the report, WTI crude was trading down about $1 to $69.64 but these are some bullish numbers across the board and it’s back just above $70. Oil levels in the US SPR are at the lowest since 2002 and will continue to decline due to the recently-announce release. However that will turn into buying in the summer.

US House approves $2.5 trillion debt ceiling increase (They should make $ 100 Trillion in one shot )

  • The debt limit will be increased to $31.4 trillion from $28.9 trillion’

The House vote goes 221-209 in favour of increasing the federal debt limit. That follows after the Senate also approved of the proposal earlier in the day, helping to avert a default.

Once again, as much as this is a can that is always kicked down the road. When the time comes, it gets done one way or another. The US is not going to default.

An oil ICYMI – IEA cites market surplus, Omicron demand hit as it lower price forecasts

The IEA revised its price outlook lower:

  • “Our oil price assumption (based on the forward curve) is roughly 15% lower for 2022 than in last month’s report,”
  • “Brent prices average $70.80/bbl in 2021 and $67.60/bbl in 2022.”

In brief the report highlighted:

Global oil demand expected to rise by 5.4 million barrels per day in 2021 and 3.3 million barrels per day in 2022 to hit pre-pandemic levels of 99.5 million barrels per day globally.

  • that’s a revision down its outlook by 100,000 barrels per day for both the remainder of this year and 2022.
  • The rise in new Covid cases was expected to slow demand,but not completely derail it.

Production is poised to outpace demand from December,

  • upward trend would extend into 2022, the IEA citing the U.S., Canada and Brazil set to pump at their highest annual levels ever
  • “Saudi Arabia and Russia could also hit records if remaining OPEC+ cuts are fully unwound,” the IEA said. “In that case, global supply would soar by 6.4 mb/d next year compared with a 1.5 mb/d rise in 2021.”

15 December 2021 oil chart

FOMC preview: Taper timeline likely to be cut in half

Powell superman meme headache

The final Federal Reserve decision of the year is here and it’s highly likely to include a hawkish move to speed the pace of the taper.

In August, the strong consensus in markets was a slow taper followed by a period of reflection and then slow rate hikes. Most were willing to follow the Fed in the belief that inflation would be transitory.

Since then it’s become increasingly clear that it’s not. Supply chain bottlenecks worsened rather than improving and the list of items rising in price broadened. On Tuesday, the producer price index — which measures input inflation — hit a record high at +9.6% year-over-year. CPI numbers have routinely beaten estimates and consumer inflation is now at the highest year-over-year level since 1982.

In that time, the Fed has performed a slow climbdown in its stance, eventually ‘retiring’ the term transitory — an admission that they were wrong.

In the crosshairs


Now Federal Reserve policymakers find themselves behind the curve and with a credibility deficit. The calls to hike rates are growing louder and so is the criticism. Former PIMCO CIO Mohammed El-Erian this week said the transitory forecast was the “worst inflation call in the history” of the Fed.

That’s some stinging criticism and unwarranted given the difficulty of navigating the pandemic. As omicron emerged in late November and the market rolled over, there was talk the Fed would pause the taper. Instead, Powell doubled down: He surprised markets by both retiring ‘transitory’ and said it would be appropriate to “talk about speeding up the taper” at this week’s meeting.

Since then, the market quickly priced into a doubling of the pace of the taper to $30B/month from $15B/month.

It’s important that there were caveats around that, particularly omicron, which he said they would know more about in the next 5-10 days.

Arguably, incoming information on omicron remains murky. Optimism about a far milder strain is fading and extremely high transmission rates have been confirmed.

However that won’t necessarily derail the Fed. The Bank of Canada outlined how omicron could be inflationary by disrupting supply chains and keeping demand for goods high as in-person service spending retrenches. I’ve also outlined how lockdowns in China could throw gasoline on the bonfire of supply chain bottlenecks.

So while omicron is increasingly likely to slow growth, it could also boost inflation. That risks an even tougher set of problems from Powell and the FOMC to navigate.

All told, I believe the chorus on inflation will be too tough for the FOMC to ignore. Tapering more quickly gives them the option of hiking sooner if omicron fizzles or causes unforeseen problems. Even if the variant proves to be a severe negative, a taper isn’t going to derail the underlying recovery, merely delay it.

The caveat


It could have been worse, but the major indices close lower on the day

It could have been worse…

The major indices closed lower on the day but each saw a modest turnaround into the close. Nevertheless,

  • the NASDAQ index is now 6% from its all-time high close.
  • The S&P index is 2% off its all-time close which was just on Friday
  • The major indices are down for the first two days of this week
  • Tech was the worst performing sector

PPI at record levels soured the mood as it moved to +9.6% for the year. Other than that, the market was quite and void of news as traders prepare for the FOMC decision tomorrow and other central bank decisions on Thursday (SNB, ECB and BOE).

The final numbers are showing:

  • Dow industrial average -106.79 points or -0.30% at 35544.17. The low reached -0.59%
  • S&P index -34.88 points or -0.75% at 4634.10. The low reached -1.35%
  • NASDAQ index -175.63 points or -1.14% at 15237.65. The low reached -2.05%
  • Russell 2000 index is trading down -20.84 points or -0.96% at 2159.65.
Go to top