Brexit Breaking Point

They are calling the Brexit vote the biggest parliamentary defeat in the History of the UK and somehow the markets did not seem to care. Poor Prime Minister Theresa May went down to a stinging but expected defeat of her Brexit plan. The vote raised the anger of European Commission President Jean-Claude Juncker who said that the “the risk of a disorderly withdrawal of the United Kingdom has increased with this evening’s vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared. I urge the United Kingdom to clarify its intentions as soon as possible.” He concluded with the warning: “Time is almost up.” So now the question is whether President Donald Trump or Jean- Claude will get a wall first.

Oil trades dipped only modestly after a big day as the dollar index rallied. It came back as it awaited the report from the American Petroleum Institute. The report was bullish for crude but bearish for products and that is one reason we are seeing prices a bit weaker to start the day. The API reported that crude supply fell by 560,000 barrels. But it was the drop in Cushing Oklahoma that was the more supportive number. The number suggests that hedges are running out and supplies must be delivered. The API reported that in the storage hub, supply fell by 796,000 barrels. Yet another big 5.99-million-barrel build in Gasoline and a distillate increase of 3.214 million barrels is suggesting some short-term weakness in demand and transportation problems down in Houston.

Yet, in the big picture, there are more signs of an undersupply of oil a few months down the road. OPEC cuts are starting to bite and more dovish central bankers from the U.S., China, and the EU assure enough economic juice to keep oil demand growing at a better than expected pace.

Fed Hawk Esther George, president of the Federal Reserve Bank of Kansas City is now a dove.  She said in a speech that “For now, it seems to me that we should proceed with caution and be patient as we approach our destination. A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run.”

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