It's beginning to look a lot like more rate hikes, everywhere you go. Look at the five-and-ten, yields rising once again. With dollar gains and silver trades so low. It’s beginning to look a lot rates hikes. The Fed put in the floor. And the prettiest sight to see is the interest that will be, you can now ask for!
Oil prices tried to shake off a mixed but friendly Energy Information Supply report. But at first, they could not overcome the Federal Reserve that not only raised interest rates but increased their outlook for rate hikes in the new year. Janet Yellen and her band of Fed Elves decided to send a message that the economy was strong enough to get 3 rate hikes in the new year. While the Fed had some discussions about the incoming President and his stimulative policies, Yellen seemed to suggest that the Fed would just take a wait and see attitude. Of course the dollar index took that as a sign that the Fed will raise rates very slowly at a time of more stimulus during a 13 year high. That caused a big drop across the commodity complex such as gold and silver and ultimately, oil.
Some blamed the Energy Information Administration report for the break but by and large it was not bearish, in fact compared to the American Petroleum Institute it was darn right bullish. Instead of an almost 5 million barrel build, the EIA reported that crude supply fell a more than expected 2.56 million barrels.
Some pointed out that the bulk of the draw was on the West Coast and that we saw another increase in Cushing, Oklahoma but again it was still more bullish than API and expectations. We did see US oil production rise last week but the products, like a 497,000 increase in gasoline and a drop of 762,000 barrels in distillates, should at some point give us support if we ever see the dollar stabilize. That is one reason why early on oil is rebounding.
Plus, we had OPEC trying to lower price expectations as to when they think the global oil market will get in balance. Of course I think now OPEC wants to under promise and over deliver.
While the higher prices will start to help US producers, the price crash in oil and gas has devastated our proven reserves. The Energy Information Administration reported that U.S. crude oil proved reserves declined 4.7 billion barrels (11.8%) from their year-end 2014 level to 35.2 billion barrels at year-end 2015, per U.S. Crude Oil and Natural Gas Proved Reserves. Year-end 2015, released today by the U.S. Energy Information Administration (EIA). U.S. natural gas proved reserves decreased 64.5 trillion cubic feet (Tcf), a 16.6% decline, reducing the U.S. total to 324.3 Tcf at year-end 2015.
The EIA says that significant reduction in the average price of both oil and natural gas between 2014 and 2015 resulted in more challenging economic and operating conditions, an important factor in determining proved reserves. These price developments, reflected in a nearly 50% decline in average West Texas Intermediate crude oil spot prices (from $95 per barrel in 2014 to $50 per barrel in 2015) and a more than 40% decline in the natural gas spot price at the Louisiana Henry Hub (from $4.55 per million Btu in 2014 to $2.62 per million Btu in 2015) led to reduced drilling activity and downward revisions in proved reserves across a broad range of U.S. producers in 2015. That drop in gas reserves is concerning as we are seeing demand for gas rise as production falls.
The cold blast is upon us and we should see record demand in some parts of the country for natural gas. Natural gas bounced back from the Sunday night warm up massacre. We are taking a wait and see attitude as we await the weekly injection report that should show a withdrawal in the 122 range.