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Long-Term Implications Of Fed Action Could Backfire On Oil

FED

There are many things about my career in interbank forex for which I am thankful. I can swear in multiple languages for example, and feel only amused when I see others in apoplectic rage. I can also still drink a lot without falling over, and hold a conversation while listening to two other things. There are also some more practical lessons that I learned, including that too narrow a focus on the news about one market is not a good idea. That seemed to be the case in energy this week, when the thing that was the focus of most other markets, the conclusion of the FOMC meeting and subsequent statement and press conference was largely ignored.

The energy markets are never short of industry specific stories, but sometimes it is what is going on in the background that sets the overall tone for the long-term, and that is the case this week. So it happened that at about the same time as Fed Chair Janet Yellen was holding a press conference the Kuwaiti oil minister was telling the world that compliance with the production cut deal was at one hundred percent, or even more, and inventory numbers were due out shortly thereafter. Oil futures traders chose to focus on oil-specific stories, but the intentions of the Fed have greater long-term implications for the market.

What the statement following the meeting and Yellen’s subsequent comments at the press conference told us was that, despite some misgivings about the strength of the U.S. economy, the central bank was…

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