Buffy may have her way on slaying vampires but she has nothing on Fed Chair Janet Yellen when it comes to killing commodities. Ms. Yellen’s testimony to Congress basically assured us that the Federal Open Market committee will raise rates in December as the economy is making significant progress. The talk sent the dollar, that was already on a tear in the aftermath of Donald Trump’s victory to heights not seen for over a decade, crushing gold and reversing a Saudi/ Russian inspired rally on the oil market. 

The impact was shattering, dragging down industrial commodities like copper, iron ore, coal and steel that had, in some cases, sored the most since the 1980s on strong Chinese’s demand and speculative buying ahead of what could be massive 1.0 trillion-dollar long-term infrastructure spending by the United States. Spot iron ore prices that had hit a 33-month high crashed, falling 16% for its first weekly loss in six weeks.

Even the Chinese government tried to cool the hot markets by loosening restrictions on coal miner’s hours to try to increase output that had been falling. The Financial Times reported that coal output statistics for October showed Chinese coal production had dropped 11 per cent in the first 10 months of 2016 versus the same period the year before. On a daily basis, output in October was down 1.5 per cent from September. China had to stem that tide ahead of winter that could see shortages if it gets colder than normal. But it was Janet Yellen and the strength of the dollar that killed the commodities, ramping up the pressure on Saudi Arabia and Russia to get a deal to limit oil production.

Both Saudi Arabia and Russia say they are confident that they are going to get a deal to freeze output. While the market is skeptical, I don’t think that you can count it out. While OPEC negotiations are never pretty it is clear that with recent market action, the producers know that this is a do or die moment. Bloomberg News reported that OPEC will complete an accord to cut production this month, while stopping short of setting the individual country limits needed to make the deal work. The Organization of Petroleum Exporting Countries will finalize a pledge to reduce total output -- its first cut in eight years -- when the group meets on Nov. 30, per 14 of 20 analysts polled this week. Yet only seven of the 20 said the group will specify how much each member should cut, an essential part of OPEC’s actions in the past.

This comes at a time when US oil demand is soaring. Bloomberg News reported that U.S. fuel consumption in October increased to the highest level for the month since 2007. Total deliveries of petroleum products, a measure of consumption, climbed 3 percent from a year earlier to 20.1 million barrels a day last month, the industry-funded group said Friday. Demand increased for gasoline and jet fuel, while consumption of distillate fuel, a category that includes diesel and heating oil, dropped. Consumption of gasoline rose 0.2 percent to 9.26 million barrels a day, the second-highest October deliveries ever. Jet fuel demand climbed 2.9 percent to 1.66 million.

There is no doubt that the US natural gas dynamics are changing very rapidly. Price weakness due to warm weather and a 30 bcf injection into storage failed to excite the market but what may start to excite us in the future is that fact that the US is now a net exporter of natural gas. Per Platts, U.S. natural gas exports exceeded imports in early November with the country’s gas balance netting an outflow of 1.0 billion cubic feet per day.That is the first time in US history that has happened and could raise concerns for the gas market if we ever see any cold weather. US production is falling and we are seeing a big drop in US imports in part because supply is ample. Yet this could be unstainable as demand grows and production falls. Use market weakness to put on long term bullish straggles for gas. This is an accident waiting to happen.