Markets today are focused on the race to zero. The FOMC will announce its decision today, and while it is not expected to cut rates from zero to 0.25%, they will tell you that 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 (NYSE: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, 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 levelled 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 Donald 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 pummelled, 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 today. Volatility seems to be coming back in a bit. Still, we could see some wild moves post FED.