Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
The Incredibly Bullish Set-Up for Gold - 20th Oct 18
Here Comes the Stock Market Retest - 20th Oct 18
Waterproof Camera - Olympus Tough TG-5 Setup and First Use - 20th Oct 18
Israel’s 50-Year Time Bomb, Pushing Palestinians to the Edge - 19th Oct 18
Bitcoin Trend Analysis 2018 - 19th Oct 18
History's Worst Stock Market Crash and the Greatest Investing Lesson! - 19th Oct 18
More Signs of a Stocks Bull Market Top and Start of a Bear Market in 2019 - 19th Oct 18
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

U.S. Strategic Petroleum Reserves: The New Monetary Tool?

Commodities / Crude Oil Sep 05, 2012 - 02:06 AM GMT

By: EconMatters

Commodities

Best Financial Markets Analysis ArticleOil and commodities are rising with renewed talk of buying bonds in Europe and future stimulus from the Federal Reserve in the United States. The problem of course is that higher oil prices partially offsets some of the benefits of these Monetary Initiatives by leaders (It is debatable how effective these policies actually are in solving the real issues and problems).


One of Europe`s biggest problems is lack of actual growth in the Euro zone, and this means that they really cannot grow their way out of their vast debt troubles. It sure cannot help that much of Europe is paying $12 a gallon for gas. No wonder their economies are in trouble.

The way European economies are set up with regard to slow growth, mature countries with little innovation, high taxes, and even higher government spending commitments means the numbers just don`t add up. Europe could start from scratch with all debt forgiven and they would be right back where they are now in less than 10 years because the numbers just don`t add up. Until the numbers start to make sense all these monetary initiatives are just temporary stop gaps which actually make the numbers problem worse.

But since everything seems to be managed these days, and all markets are correlated globally with electronic trading and sophisticated trading algos, central governments might as well be in charge of the actual commodities they are juicing. Because in effect their policies are managing these commodities prices, from corn to gold, from gasoline futures to silver prices as it is all the same trade in the market`s perspective.

So why not let these central governments manage the outright commodities just like OPEC? ECB starts bond buying program, dumps a bunch of oil on the market to offset the negative side effects of their programs. The Fed starts QE3, dumps a bunch of Oil on the market at the same time so Oil prices don`t rise with the stock market on QE3.

Do these SPR releases work? Heck yeah, just ask all those traders who lost money last year when WTI went from $115 a barrel to $94 in 24 hours on the rumor behind the scenes that the SPR releases were being coordinated (this is long before the actual news when the price dropped about $7 dollars a barrel).

By the time the SPR releases were actually announced all the big players had already priced this event into the markets. The real damage came before the actual announcement as like most things on Wall Street inside information runs rampant when so much money is involved.

Can you imagine how valuable that information was that got leaked to the big players that there was going to be a large coordinated release of the SPR`s? Now you are not naive enough to think that the magical $20 drop in Oil prices over that 2 day period was just natural markets at work do you? So yes, SPR releases do in fact work!

Oil markets like most commodities are momentum based, and besides the immediate additional supply on the market and the drop in futures prices as longs get screwed and have to dump positions is the psychological factor that at any time the Government can come in and “manage” the market. It is hard to get too much momentum going under those circumstances. In effect, sort of like OPEC manipulates….I mean “manages” prices.

Why not set a target and then trader`s will know exactly where they can push the price of oil before getting out? Is it any different than the Swiss targeting a level in their currency or China for that matter? If the ECB is going to target an interest rate for Spanish Bond Yields on the 10-Year, why not set actual targets for Oil as well?

For example, target WTI at no higher than $90 or $95 a barrel and Brent at $105 to $110, and then Central Governments wouldn`t even actually have to release any Oil as they could just set the targets and markets would do the work for them assuming no actual supply shortages in the market. Which by the way has actually been the case for the last 5 years based upon conservative analysis of the EIA data, i.e., there has been no supply shortages despite the price fluctuations with all oil inventories well above average supply levels during this period.

Really, since Finance ministers are in effect “Managing “ oil prices as a byproduct of their actions anyway just give them one more tool for their policy initiatives in letting them manage the releases of the SPR`s as well.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2012 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules