Just as oil looked poised to break out and run COVID 19 realities sunk in as demand fears started to raise their ugly head. A surge in cases in India and an announcement that Prime Minister Modi was going to give a speech addressing the issue caused oil bulls to panic. Even though Prime Minister Modi vowed not to shut down the economy he warned that India faces a coronavirus “storm” that could overwhelm its health system.

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It did not help that at about the same time as the announcement about the speech came out, then a report about the Johnson and Johnson vaccine. Fox News reported that a European Union regulator has recommended that the Johnson & Johnson COVID-19 vaccine should include a warning about unusual blood clots with low platelets. The European Medicines Agency (EMA) safety committee (PRAC) said the events should be listed as very rare side effects of the vaccine. However, the committee noted that "based on the currently available evidence, specific risk factors have not been confirmed." It also said that "the reported combination of blood clots and low blood platelets is very rare, and the overall benefits of COVID-19 Vaccine Janssen in preventing COVID-19 outweigh the risks of side effects."

Some traders also freaked out on a report that the House Judiciary Committee is going after OPEC again. Reuters reported that they passed a bill to open the OPEC oil production group and countries working with it to lawsuits for collusion in boosting petroleum prices, but it was uncertain whether the full chamber would consider the legislation. The so-called NOPEC bill, introduced by Representative Steve Chabot, a Republican, passed on a voice vote in the House Judiciary Committee. It would allow the U.S. Justice Department to bring anti-trust lawsuits against oil-producing countries in the Organization of the Petroleum Exporting Countries. Similar bills to pressure OPEC when oil prices are on the rise have appeared in Congress without success for more than 20 years.

So why would oil traders think that this bill has a better chance of going anywhere? That remains to be seen. Yet it was another factor that conspired to yesterday’s sell-off.

Then came the American Petroleum Institute (API) report that was less than bullish. The API said that Crude supply increased by 436,000 barrels versus expectations for a 2.975-million-barrel drawdown. Still, we did see supply in the Cushing Oklahoma delivery point fall by 1.286 million barrels which suggest decent demand. Gasoline supply reportedly fell by 1.617 million barrels a sign that the US economy is starting to reopen but distillates increased by 655.000 barrels. 

Yet despite oil weakness, the inflation play is at hand. Manufacturers are raising the prices of everything from Coca-Cola, diapers, and paper products as the commodity supercycle start to bite into y0our paycheck. Oil prices while struggling are still $100 a barrel above their negative price a year ago and despite this consolidation is poised to breakout higher.