Oil prices are higher for the second day after the American Petroleum Institute reported a sizable 3.13 million barrel drop in crude supply and a large 1.5 million barrel drop in Cushing Oklahoma. That drop in the all -important NYMEX delivery point is raising concerns that U.S. oil production may be peaking faster than most have been reported. Those fears are being accentuated by a warning by the Moody's rating agency, warning that the oil companies will sharply cut spending even more than the 10 to 20% cuts that we have already seen this year.
Oil prices are also getting a bounce on global stock markets that have performed well as the Federal Open Market committee starts its two day meeting, the key of course is whether or not the Fed will raise rates and that decision will obviously impact oil prices. Back in 2009 when I started to write about the impact of Fed policy on oil prices there was not a lot of talk about that. In fact, I was one of the very few that was talking about it. In fact, there were articles critical of me for making that point. Of course, as time went on many realized the impact on Fed policy on oil and other commodities. As that gained credibly current Fed Chair Janet Yellen tried to dismiss that link in a Wall Street Journal op-ed. Now with the Fed raising rates, will that put downside pressure on prices? At first perhaps but over time with Europe and Asia still stimulating their economies for the long term that demand will offset the impact from a Fed that will only be raising rates gradually over time.
The API also reported that gas demand remains strong as supplies increased by only 518.000 barrels. Distillate inventories rose a hefty 3.09 million barrels as refiners build supply ahead of expected harvest demand from farmers and the upcoming winter. The seasonal low may be in for oil! If we take out the highs for this week we could make a run for $50