While oil prices flirted with $50 a barrel because of the November crude oil expiration yesterday, today oil is running hot on a weak dollar and UK inflation data. The proclaiming by Fed Chair Janet Yellen that the economy could run hot for a while is a signal that oil prices should continue to run higher. Even as the Fed embarks on its first interest rate adjustment in a year in December, the proclamation by the Fed chair that the economy could run oil to our $60 a barrel target.

You see if the economy is to be allowed to run hot with a bit of inflation, the dollar trade might not be as bullish because Yellen’s hot talk means the market will test a barrage of interest rate cuts even as oil prices start to move to my year end target of $60 plus a barrel. One of the headwinds for the barrel of oil has been the strong dollar which may be less of a threat if the Fed can convince the market that the expected December interest rate increase is a one and done for a while and not the start of sharp increases in rates.

If the dollar then becomes less of an issue, then oil can focus on a market that is back in balance between supply and demand. Even with the expected increases of supply from non-reliable suppliers like Nigeria and Libya, it is clear that barring any economic catastrophe, the global oil market is on a path to a global daily supply deficit.

Even with the increase in shale rigs they are needed to offset shale production declines in North Dakota that has seen its production drop due to a lack of investment and the fact that North Dakota is more expensive than shale plays in say Texas. North Dakota oil production fell 4.7% in August falling below the one-million-barrel-a-day mark for the first since 2014.

Of course oil in the short term still has to get through shoulder season where demand drops and refineries go into maintenance. We saw that cause an increase in supply last week, ending 6 weeks of crude supply declines.

The American Petroleum Institute (API) releases their report on supply after the close and it should show a slight increase in crude supply again as refinery maintenance and lost supply from Hurricane Matthew may be found. Bloomberg is reporting that in their survey oil inventories are expected to increase by 2.1 million barrels. They say refinery utilization +0.25 to 85.8%.

At the same time oil traders have watching another storm that could impact crude oil imports and supply. The National Hurricane Center is reporting that shower activity associated with a low pressure area located just to the northeast of the southeastern Bahamas has become more concentrated this morning, and surface observations indicate that pressures are falling in the area. The low is expected to slowly intensify as upper level winds become more conducive, and a subtropical or tropical cyclone could form during the next day or two as the low moves northward or north-northwestward.

We think RBOB futures are ready to spike higher even as retail prices drop. AAA is reporting that gas prices as of Monday have fallen 9 straight days putting the national average price of regular unleaded at $2.24 per gallon. Monday’s average price represents a decrease of two cents per gallon compared to one week ago, but remains five cents more than last month. However, drivers across the country continue to see savings at the pump and are paying an average of three cents less per gallon year-over-year. As far as supply, Bloomberg is reporting that gasoline stockpiles will drop by 1.125 million barrels.

Distillate demand continues to be phenomenal as farmers bring in those record crops. Bloomberg is calling for a 1.4 million barrel drop in distillate supply. We look to buy heating oil on breaks.

Crazy weather, falling production and the upcoming winter is making natural gas still buoyant. Cooling demand instead of heating demand has kept this market off of balance. Point Logic has U.S. gas production down sharply in October, settling in range close to 70.5 bcf/d for most of the month so far. This compares with 71.9 bcf/d in September and 72.9 in both August and July, and with 73.1 bcf/d for October 2015. We have been long term bulls on natural gas and I continue to be so! Use market weakness to establish longer term bullish positions. I laid the case for natural gas prices months ago in my webinar that is still very timely if you want a copy. More people are now getting bullish natural gas and oil and despite the run-up and I feel there is more to go.