Wednesday saw a strong close in the energy commodity complex. It seems to have started with oil, with West Texas Intermediate crude up 4.8 percent, and natural gas rose 10 percent. Gasoline climbed almost 6 percent.
It's about time nat gas rallied, considering it normally rallies at the start of a cold snap, which started last week.
But it's harder to explain the timing of the rally, as well as the rally in some energy stocks, which began shortly after 2 p.m., ET.
Energy traders noted that options on crude expire Wednesday, and that may well be the simple answer.
But it's strange—big volume suddenly appeared at 2 p.m. and not just on the commodities. The Oil & Gas Exploration ETF , which hit a 3-year low Wednesday morning, suddenly rallied on big volume at the same time.
The Fed Beige Book came out at 2 p.m, and our Steve Liesman noted the unusual focus on energy. Headlines include:
1) "Some energy firms report hiring freezes, layoffs"
2) "Energy service firms expect 15%-40% decline in demand"
3) "Contacts in the San Francisco District reported that energy demand from manufacturers was solid. The overall output of energy-related products increased."
While the last comment was bullish, my guess is that the rally and the Beige Book is just a coincidence. There is nothing the Fed said that the energy trading community does not know.
One thing that is clear: the Street is very short energy, and open interest in options is fairly significant. With options expiring, and a lot of puts deep in the money, the one thing we do know is that many energy traders will have a markedly different position on Thursday than they did today.