Crude

We would say today's main event is the culmination of the Fed's two-day meeting and the announcement slated for 2 pm this afternoon, however with the 90 economists polled by Bloomberg all expecting no rate hike, today's Fed decision also happens to be the least anticipated in years (which may be just the time for the Fed to prove it is not driven by market considerations and shock everybody, alas that will not happen). And considering how bad the economic data has gone in recent months, not to mention the recent easing, hints of easing, and outright return to currency war by other banks, the Fed is once again trapped and may not be able to hike in December or perhaps ever, now that the USD is again surging not due to its actions but due to what other central banks are doing.

News That Matters

While lower than last week's levels, API reported a still considerable 4.1 million barrel crude inventory build last week. This is the 5th consecutive inventory build. However, despite the size of the overall build, crude prices are rising (extending gains off NYMEX Close ramp) which may be related to a 748k draw on crude stocks at Cushing.

Who holds the majority of the debt that would be at risk in a Russian default? Not China.  Not Iran.  Not Syria.  No, it’s the exact same nations, and banks and funds within those nations, that are applying the sanctions against Russia. So, if Russia does default, what does it mean in terms of its political relationship with the West? Nothing. But what does it mean to its creditors? Everything... Simply put, if Putin believes that the benefits of a default outweigh the consequences to his country, he won’t hesitate to do it, no matter the international ruckus it might raise.

On the heels of the nuclear deal and Tehran's ground operation in Syria, Iran is stepping up efforts to prove that contrary to Western rhetoric, it is not in fact "isolated." According to the country's economy minister, Iran is now set to join the BRICS bank and step up its cooperation with Brazil. This is symptomatic of Washington's waning ability to exert American influence on global affairs both political and economic.

It appears this morning's dismal Durable Goods data was the last straw on the camel's back of the 'bad news is goods news' meme. With GDP estimates plunging and numerous economic indicators flashing red, it seems last week's central-bank-inspired exuberance is wearing off as proof that their policies have failed mounts up. 10Y yields are near the crucial 2.00% barrier (and Bund yields are crashing), Crude tumbled to a $42 handle, and US equities have given up all of the China rate cut gains...

Two biggest move overnight came from everyone's favorite carry pair, the USDJPY, which may have finally read what we said yesterday, namely that with the Fed and ECB both doing its job, there is little need for the Bank of Japan to repeat its Halloween massacre for the second year in a row, and as a result will keep its QQE program unchanged. It promptly tumbled from its 121 tractor level, to just above 120.25, where BOJ bids were said to be found. With the FOMC October meeting starting today, the other overnight catalyst was not surprisingly the latest Hilsenrath scribe in which he removed any uncertainty about a Wednesday hike, "leaving mid-December as the central bank’s last chance to raise rates this year."

The signs of regime change are everywhere. From embarrassment by Russia's success in Syria to China's creation of its own 'World Bank' and SWIFT alternative, the trend of de-empirization are growing, but tonight's news that Washington will sell oil from its strategic reserve in order to meet budget constraints and avoid default (as China takes advantage of low prices to build its own reserves) is simply stunning in its analogy of the shifting world order.

If this is indeed a rerun of the post-LTCM/pre first tech bubble days, then oil is about to soar by 150%

News That Matters

Distillate storage utilization in the US and Europe is nearing historically high levels, following near record refinery utilization, only modest demand growth (especially relative to gasoline), and increased imports from the East on refinery expansion and Chinese exports. As Goldman warns, this raises the spectre of 1998/2009 when distillate storage hit capacity, pushing runs and crude oil prices sharply lower. This also raises the question of whether today’s oil market can rebalance through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity and forcing prices below cash costs – is unavoidable.