The oil market was supposed to be all about oil inventories and about the Fed this week and it was. But something significant that happened that not a lot of people are talking about is a significant new wrinkle in this global macroeconomic game that we are playing. The dollar was weak as it was clear to the market place that the Fed was going to sue us that rates were going to be on hold for the foreseeable future. The Federal Reserve even though they did not announce plans to print more money to buy more securities the market knew at the very least that the printing presses were at the ready. Of course that would mean that we would be facing a weak dollar scenario for the long run unless of course someone intervened. And someone did.

The Swiss National Bank slammed the Swiss franc and changed to fortunes of the dollar yesterday by intervening in their currency.  Market Watch said that the euro jumped sharply versus the Swiss franc to trade at 1.529 francs in recent action, a gain of 1.8%, on suspected intervention by the Swiss National Bank after the euro/Swiss franc cross had previously neared the 1.50 franc level. The Wall Street Journal said that North American traders said they saw the Swiss National Bank buying dollars on the Electronic Broking System, or EBS, around noon in New York, after another sharp move near 7 a.m. EDT. They a safe haven amid the global financial crisis. They said that the SNB has been warning against excessive Swiss franc strength for months. The central bank has promised to fight the risks of deflation and shrinking economic growth, made worse by a strong currency, which also puts the price of Swiss exports at a disadvantage. Investors have been flocking to the franc because it is considered a safe haven from the crisis.

Yet the timing of the move makes one wonder if central bank intervention is going to be the next tool that will be widely use to try to counteract the actions of the Fed and to try to shore up the dollar so oil prices stop their meteoric rise as compared to supply and demand. The Fed in their statement mentioned oil by saying that “The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.” Resource slack? Why don’t you just say that we are swimming in supply? In other words the Fed Knows it is responsible for the increase in the price of oil and is confident that it can influence and keep the prices under control. How? Well perhaps at times the right mixes of a central bank currency intervention or two.

Of course talking about resource slack the Energy Information Agency showed we have plenty of slack In fact you might say we are resource slackers but not as slacked as the API might have you believe. The EIA reported that U.S. commercial crude oil inventories fell by a twice as much as expected 3.8 million barrels from the previous week. That put supply at 353.9 million barrels, U.S. crude oil inventories and well above average for this time of year. The EIA said that motor gasoline inventories increased by 3.9 million barrels last week, and are in the lower half of the average range. Yet perhaps we should focus on distillates which the EIA says increased by 2.1 million barrels and re above the upper boundary of the average range for this time of year.

Long time Energy Report reader Howard pointed out that because we saw a build on the DOE of total products in excess of 5 million barrels which he feels is the most important metric on the weekly DOE that we are seeing clear evidence that s demand is continuing deteriorate, . That in turn makes him wonder-'When does the fundamental aspect out weight the dollar vs. oil trade to guard against inflation?

Howard Points out as the Fed does that we are totally resource slacked!! Howard says that if you look back a couple of years ago, US demand was 20.8 MBPD...today it is 18.3? He believes that according to the trends in the data it will continue to go lower the rest of the year.... He notes that in the EIA data refinery capacity has grown by 62 thousand more barrels a day to a total 17.67 today. This is significant as because Howard says that if he is doing his math right our domestic refineries are closing in on the ability to refine our own needs

Howard is not alone in that thinking. The EIA as reported by Reuters says that “US oil demand should rebound when the economy recovers, but crude oil imports may not resume growth as rapidly as they did when past recessions ended.”

The reason they say is that “new domestic petroleum supplies may minimize the need for more imports when the United States comes out of its economic downturn” The EIA says that  "U.S. crude oil production is expected to increase, mainly due to the start of operations at several major platforms in the deepwater Gulf of Mexico.   In addition, "a modest portion" of U.S. fuel demand growth will be met by domestically produced ethanol and other biofuels required by law to increase each year to reduce U.S. reliance on petroleum imports.  The EIA also said oil demand may grow more slowly because of required fuel economy increases for U.S. cars and trucks.   As for which countries are best positioned to provide oil imports as the global economy recovers, the agency said OPEC members will benefit the most. “It is clear that OPEC members in the Middle East, who have absorbed the bulk of production cuts made in the present global economic downturn and are also adding to their production capacity, are well-situated to supply a major portion of the oil that would be required to meet growing global oil demand as the world economy recovers."

So what we are seeing is another historic shift in the common thinking on energy. Already we are becoming for self reliant on energy and much more so than many of the experts would have predicted. The energy marklet is changinging  yet at the same time the way we think of price is changinging as well. The reason we are making this historic shift to less imports is that high prices inspired alternatives and more production. The markets continue to work as long as we stay out of the way.

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