Crude and refined products broke out higher from well entrenched trading ranges this week. The catalyst was surprise inventory draws in gas and distillates. The underlying driving forces are low US interest rates to finance trades and a weak US dollar supporting energy prices.
The US Federal Open Market Committee should have learned the consequences of a weak US dollar when the dollar vs the euro was trading at $1.60 and crude at $147. On Friday crude closed at $78.47 and the dollar at $1.4967.
Quite simply, the Fed needs to raise interest rates now, or at least begin rhetoric advising it might be a near term consideration. Without any fear at all of an imminent interest rate hike, the dollar will continue to slide, trades will be financed on the cheap, and crude has nothing stopping it from cruising to $90 by year end.
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