A Quiet End To Tumultuous Week Sees Oil Soar Again

Searching everywhere for a solid answer for crude’s sudden and unexpected rise, we have to settle on casino mentality speculative forces afoot in the marketplace.

Sure, there was am aberrant pipeline issue in Nigeria. And yes, there are some indications of higher levels of U.S. economic growth. Rumor has it too that Venezuela is seeking an emergency meeting of OPEC nations in order to plead for higher benchmark sets.

But Nigeria’s problems will be healed in a week or two and the U.S. growth spurt is now in the rear view mirror. In fact, today it was reported that American consumer confidence levels fell to the lowest in three months. And Venezuela has about as much chance of getting the desired meeting, let alone a price boost, out of the Saudis.

Overproduction is till the style of the day and ti shows no signs of waning. Additionally, the U.S. rig counts are holding steady to slightly up, prices of Canadian oil are depressed in the low to mid 30s per barrel and Iran is going to come back on line when sanctions are lifted.

Granted, crude prices may have been prematurely low when they hit the $38 to $39 area, but that was simply a matter of timing rather than bad fundamental underpinning the trade.

So, we look for oil to drift down on the factors cited above and don’t see much chance for prices to stay any higher than they are now for quite some time.

Gold fought off a higher U.S. dollar as regular trading gave the precious metal renewed vigor on U.S. economic data and a short interview by Fed vice-chairman Stanley Fischer.

Fischer said it was too early to tell if a rate hike would come in September, which he had to say, of course. He was careful to say that a rate hike two weeks from now was not a given, but it wasn’t off the table completely. He would make a great steak griller… can anyone really tell the essential difference between medium and medium well done? Can anyone explain those things in words?

Regarding rates, Fischer said, "When the case is overwhelming, if you wait that long, you'll be waiting too long. There's always uncertainty."

Fischer emphasized that the Fed's tightening will be gradual.

"We do not intend doing a rapid rate of increase," he said.

Earlier this week, New York Fed President William Dudley made headlines when he played down the chances of a September rate increase.

We vote against a rate hike in September and we also say that Dudley is a more powerful force on the Federal Open Market Committee than the vice-chair. The other voting Fed presidents would howl when we say this, but the New York Fed is the dog and the tail. If Dudley says “wag,” the whole Fed wags.

Wishing you as always, good trading,