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
SPX/Gold, 30yr Yields & Yield Curve – Amigos 1, 2 & 3 Updated - 21st Oct 18
Gold Stocks Sentiment Shifting - 21st Oct 18
Why Is the Weakness In GBP/USD Likely? - 21st Oct 18
Stock Market Bubbles, Balloons, Needles and Pins - 21st Oct 18
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

QE3, SPR Release and Gasoline Prices

Commodities / Crude Oil Sep 27, 2012 - 03:28 AM GMT

By: EconMatters

Commodities

Best Financial Markets Analysis ArticleWith crude oil accounting for 65% of the price of gasoline, there's typically a high correlation between the price of oil and gasoline. However, there's been a disconnect between the two for the most part of this year. The main reason for the disconnect is the divergence of supply market fundamentals.



Chart data source: US EIA

As the two charts below illustrate, while domestic crude oil supply remains way above the 5-year average, the gasoline supply is actually a lot tighter by historical norm, primarily due to some domestic unscheduled refinery accidents/outages, refinery closures in the Atlantic Basin leading to an increase in gasoline exports from the US.

To make things worse, on top of the already tight domestic gasoline supply, Fed picked a nice “political” timing to launch its infinite QE3. On September 13, 2012, Helicopter Ben has pledged an open-ended $40 billion a month MBS bond purchasing program, while holding the fed funds rate near zero at least through mid-2015.

The likely eventual consequence of this unlimited money printing operation – Dollar debase and the artificial price inflation of almost everything from commodities (including Oil and Gasoline) to stocks, and consumers end up paying the price.

For now, Brent dropped 4.5% last week, while U.S. WTI crude also lost 6.2%. Oil has been held down primarily by slowing global economic growth and the dismal demand outlook.

Meanwhile, the national average gasoline price also saw a nickel a gallon decrease from a week ago, according to the AAA automobile club. Nevertheless, the current national average --$3.805 a gallon for regular gasoline -- is still 8% above a year ago level and fairly close to where they were in 2008 before the financial crisis.

Gasoline has always been a hot topic during any election year. In fact, interesting exchanges have already taken place between White House, G7, and the IEA regarding a potential SPR (strategic petroleum reserves), with a clear divide between the oil industry experts (IEA) and politicians (White House, G7, et al). IEA’s position was that oil markets were currently well supplied and there was no reason to release SPR.

With Obama’s re-election on the line, and to counter the potential effect of artificial price inflation by QE3, an SPR release attempting to bring down oil and gasoline prices would be the politically correct move by the White House.

As predicted in our previous post, domestic crude oil inventory could continue to build even from the current high level. From a global supply standpoint, Saudi Arabia reportedly has pledged to pump around 10 million barrels of crude a day in a bid to cut the price of Brent crude to around $100/bbl. These factors should further weaken the justification of an IEA-coordinated oil release like the one from last year.

However, even if there’s an SPR release--unilateral by the U.S. or not--it will unlikely have as significant impact as people might expect on gasoline prices due to the diverging supply fundamentals discussed here. Think it could be a good idea to consider a strategic gasoline reserve 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