Oil prices washed out after the Energy Information Administration (EIA) showed a surprise drop in refinery runs and a lower forecast from that seems to suggest that the pain in the oil market may not be over. The EIA said that "amid high uncertainty in the global oil market, EIA has lowered crude oil price forecasts, expecting West Texas Intermediate crude oil prices to average $49 per barrel (b) in 2015 and $54/b in 2016, $6/b and $8/b lower than forecast in last month's STEO, respectively. Concerns over the pace of economic growth in emerging markets, continuing (albeit slowing) supply growth, increases in global liquids inventories and the possibility of increasing volumes of Iranian crude oil on the market contributed to the changed forecast."
In the meantime concerns that demand in the U.S. may be faltering after a surprise drop in refinery runs and a much larger than expected build in in crude oil supply. The EIA showed that commercial crude oil inventories increased by 2.6 million barrels from the previous week and refinery runs fell unexpectedly to 95.1%. This came as U.S. imports also increased by 465,000 barrels per day in to a market where U.S. production only dipped slightly to 9.348 million barrels a day down from 9.395 million barrels last week.
Yet, crashing oil prices still have consequences and according to the Federal Reserve Open Market Committee minutes it may be a reason the Fed can't raise rates. While The Fed seems split on the timing of a rate increase and the biggest problem is the lack on inflation. In the Fed Minutes, worries about the lack on inflation were expressed. "Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term" a fear that will only be enhanced with falling oil prices not to mention turmoil in China. Last night the Shenzhen fell 3.2%, to 3,761.45 points, while the Shanghai Composite Index lost 3.4%, to 3,664.29.