Commodity prices were on fire on Thursday morning still soaring after comments by Treasury Secretary Steve Mnuchin that the weak dollar was good for the U.S. economy. European Central Bank President Mario Draghi then weighed in and seemed aghast at the remote possibility that someone in a high governmental position might make a comment to weaken their currencies, so said Mr. I’ll do whatever it takes to save the Euro. The Wall Street Journal said that “While he didn’t refer to Mr. Mnuchin by name, he suggested that recent comments breached an agreement among policy makers not to target exchange rates for competitive purposes. In central-banking terms, that counts as the gloves coming off.” Yet his comments seemed to do little to change the direction of the rising Euro or the falling dollar. That was left to President Donald Trump who laid down the trump card and said that the dollar is going to get stronger and stronger” which caused oil and other surging commodities like metals to erase gains and shake off the Steve Mnuchin dollar talk that was just stating facts. Facts like a weak U.S. dollar is good right now for the U.S. economy and in a round about way the global economy as we are the country that buys the most stuff.
The Washington Times reported that Treasury Secretary Steve Mnuchin was surprised how much attention his comments on the dollar received since it’s a consistent point he’s made for the past year. “I am a bit surprised,” Mr. Mnuchin said on Fox Business. “My comments about the dollar had been completely consistent with what I’ve said over the last year.” He said that the drop in the dollar was “not a concern of mine,” adding that the dollar will strengthen as the economy continues to prosper. “If you look at my full transcript from yesterday, it was incredibly balanced, it was consistent with what I’ve said over the last year, and it wasn’t news,” he added. Tell the oil and gold and copper traders that. After his comments the dollar had its biggest drop in 10 months causing oil to rise faster than it already was on plunging global oil inventories.
President Donald Trump saw and said that Mnuchin’ s comments were taken out of context, He said the U.S. is going to see a strong dollar at some point. The dollar had been trending lower anyway as the market feels that even with the likelihood of 4 additional interest rate increases this year, the environment is still accommodative considering the strength of the U.S. economy, which has lifted the entire globe out of recession territory.
That fact is why global oil demand is strong and only going to get stronger this year. Even with the big increase in U.S. shale production, the realities of no new oil discoveries and the falling production growth for traditional oil projects is going to keep the market tight. Early expectations are for another crude oil draw from Cushing Oklahoma next week but with slowing refinery activity due to seasonal maintenance we could break the record breaking streak of falling oil supply.
Natural gas has had some wild times. February natural gas,,that saw a squeeze earlier in the week, retreated after a bullish storage report. The EIA reported that working gas in storage came in at 2,296 Bcf down 288 Bcf from the previous week. Stocks were 519 Bcf less than last year currently and 486 Bcf below the five-year average of 2,782 Bcf. At 2,296 Bcf, total working gas is below the five-year historical range.
Yet, while supply is lower than average a late January thaw is allowing traders to become more confident that producers producing record supply can offset what has been record demand. U.S. Nat gas production is up 8.5% y-o-y to a whopping 86.2 bcf per day! That is outstripping a historic 8% jump in U.S. demand. The hope is that when we get to spring that 86.2 production level will restock those depleted salt mines. Yet if the predictions being made by some of a new arctic blast in February come true, we may see another squeeze in the March contract. If the predictions of the cold blast is wrong the prices of natural gas could crash. Maybe buy puts and calls.
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