Fed Looks to Keep Economic Recovery Going
May 20th, 2020
The API released their inventory update yesterday afternoon and it showed crude oil stocks down 4.8 million barrels and the stocks of crude oil at Cushing, Ok were done 5 million barrels. Gasoline stocks were down 651,000 barrels and distillate stocks were down 5.08 million barrels.
About 108 million people in China’s northwest region are being place under lockdown conditions due to a new and growing cluster of coronavirus infections. In a reversal of the re-opening taking place across the nation, cities in Jilin provide have cut off trains and buses, shut schools and quarantined tens of thousands of people. While the cluster of 34 infections is not growing as quickly as the outbreak in Wuhan which started the global pandemic last December, China’s quick reaction reflects its fears of a second wave after it curbed the spread of the virus at great economic and social cost.
Fed chairman, Jerome Powell, has given the indication that the Fed would be very accommodating in taking actions needed going forward to keep the US recover going. Minneapolis Federal Reserve President, Neel Kashkari, said the US has extraordinary fiscal capacity to borrow and spend what it needs to get though the crisis. Now is not the time to be cautious in spending. He is echoing Powell’s sentiment and the market like this attitude as it continues to try and get back on track.
June NYMEX WTI crude oil futures expired yesterday and it was much more calm than last month when the futures traded to negative values for the first time ever.
The energy market is trading in a range as good news pushes it to the upside and bad news pulls it back. The market could be in this range for a while as it tries to see what the path forward looks like. Demand is coming back and many say is it stronger than anticipated. I am a bit skeptical. Production has declined much faster and more than anyone had forecast so in the longer term these things are supportive of prices barring a second wave does not derail the recovery. Optimism is higher currently and that will allow the bulls to try to take the energy markets higher. After a massive sell off it makes sense to see a bounce and because of the massive sell off the bulls have a lot of room on the upside to trade this market higher but it will still be stuck in a range. It will be a choppy and volatile market as it moves forward until the picture forward is a lot clearer.