Cold weather and Fed pessimism helped oil products defy a bearish Energy Information Agency supply report but a downgrade of Japan and Taiwan may take away from some of the bullish oil and product momentum. Overnight Standard & Poor's cut Japan's long-term sovereign-credit rating downgrading Japanese debt to AA minus from AA. S&P slammed Japan by saying it lacks a coherent strategy to address these negative aspects of the country's debt dynamics. (I hope S&P missed the State of the Union speech). Still S&P reaffirmed the nation's short-term ratings at A-1 plus. Fitch also downgraded Taiwan's local-currency credit rating to AA-minus from AA. These moves could signal softness in demand and could cool off red hot product prices. It kept Taiwan's foreign-currency credit rating at A-plus, citing an upbeat global outlook.

Futures got a boost in the aftermath of the less than rosy Fed statement as Fed pessimism seemed to permeate out of the Fed Statement. The total lack of concern regarding inflation in the Fed statement is a strong buy signal in my mind for commodities across the board. The Fed said that they confirm that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. They say that growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising yet they say that investment in nonresidential structures is still weak. They are worried because employers remain reluctant to add to payrolls. They worry that the housing sector continues to be depressed. And the most bullish commodity statement over all is that, Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward. In other words, the Fed does not fear food or energy prices. If they don't then why should commodity bulls?

Product players were frustrated as the products decided to rally. Support is coming from overseas and is making the market here in the U.S. act erratic. Still the rally may be a last gasp or at the very least products are near the higher end of a trading range. Cash players are getting frustrated as it is hard to explain how the market can ignore a bearish EIA report. The EIA reported that U.S. commercial crude oil inventories increased by 4.8 million barrels from the previous week. At 340.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.4 million barrels last week and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 0.1 million barrels and are above the upper limit of the average range for this time of year.

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