The general financial news media, playing their favorite game of "pin the reason on the rally," found a new culprit: the minutes of the last Federal Reserve meeting.
Of course, since there was no smoking gun -- such as Ben Bernanke saying "crude is real cheap, I think everyone should go out and buy some" -- in the minutes of a meeting that occured weeks ago, the headlines hedged a bit, saying that crude hit a new record "after" the minutes were released.
Very little notice was given to the fact that the March contract was expiring Wednesday, and that traders short the contract might be forced to cover rather than deliver. Also, there is large open interest in the April $100 strike, which could be causing some negative delta-hedging as prices rose through that level.
Are speculators to blame? That would be nice, but it's doubtful, as open interest has been falling during the rally -- indicative more of short-covering than of fresh long positions. So either the speculators were short and forced to cover, or commercials were buying back hedges put in at lower prices.
So what did the Fed say that might have triggered a rally?
--Economic conditions are deteriorating in established economies...no, that couldn't be it, since wouldn't that cut demand for oil?
--Inflation data showed some upward pressure on prices. But that is just an effect of higher energy costs, not something that should cause higher energy costs.
--Inflation was considered likely to moderate over the coming quarters. This might open the door for further rate cuts, which should further pressure the US dollar...
Which in fact happened. The US Dollar Index tumbled following the minutes' release, which lent support to crude values. A weaker dollar hurts the terms of trade for oil exporters, whose expenses are in other stronger currencies while their income is in the weaker dollar.
So while the Fed minutes had a bit of knock-on effect on crude prices, most reporters went the route of oversimplification and grasping at straws to find a reason, any reason, for the rally.
I'm just surprised not to see any talk about the "broken" NYMEX WTI contract...but that's fodder for another day.
