Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Worse than Watergate - Release the Memo - Investigate Uranium One - 23rd Jan 18
CAT Stock Bouncing after JPM Upgrade How High and How Long Can This CAT Jump? - 23rd Jan 18
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

What the Fed Taper Means for Crude Oil Prices

Commodities / Crude Oil Dec 20, 2013 - 05:10 AM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: Yesterday afternoon, after much gnashing of teeth, the Fed finally revealed its long awaited taper plans…

And the DOW jumped by almost 300 points.

Now, the taper itself is small to start – just a $10 billion reduction for the month of January. But the announcement was coupled with a pledge to keep the fed funds rate at zero beyond the 6.5% unemployment threshold.


As a result, two things collided in the last 90 minutes of yesterday’s trade: A clear indication that the economic recovery was strengthening and a classic “short squeeze,” which merely added fuel to the fire.

As we approach the end of the year, that means the “Santa Claus rally” may have a bit longer to run

But longer-term, the market is now faced with less artificial stimulus next year and a gradual return to a market where direct pressures influence its direction.

Here’s what that will mean for the oil prices in 2014…

A Walk into the Great Unknown

Now, there have been opinions expressed (which in large measure parallel my own) that the Fed’s stimulus has had a declining net influence on stock market performance.

Certainly, the low interest rate environment has made money more affordable (cheaper, actually), had a positive impact on the real estate sector, and provided some incentive to leverage moves in the M&A market.

Yet the genuine benefit of these has been disappearing.

The great unknown is still the effect all of this stimulus will have on forward inflationary pressures.

The bond buying programs, after all, are financed with manufactured money, not proceeds from actual market operations.

But most of the more reasoned arguments among competent analysts have centered on what successive stages of QE contribute to the building of inflationary expectations.

To date, that appears to have been negligible.

The Fed may have achieved its primary purpose of fiscal support while avoiding a longer-term erosion of overall market value. Now I admit, it is too early to say for sure, but so far, so good.

Of course, should there be a serious downturn in the recovery, a return to adding manufactured liquidity to the market is always possible. However, absent a major setback or crisis, that may be unlikely in the medium-term.

And that means, as tapering works itself out, the process will impact different market sectors in different ways.

OK, then, so what is in store for the energy sector?…

What Really Drives Oil and Gas Investments

The single most important force in energy prospects will remain the aggregate demand indicators.

This is the primary immediate driver of energy prices, especially oil and gas, in just about any market environment (save one complicated by crisis or war). I regularly comment on such developments here, developments that have little to do with Fed policy.

Of course, they do have something to say about the expectations surrounding the economic recovery. And that recovery is the main reason the tapering is happening in the first place. A reversal in one will lead to a change in the other. But demand levels are not something swayed by the taper.

In addition to the range of energy sector specific market considerations we regularly review here, the selection of energy companies will remain tempered by three considerations in a tapering environment:

(1) The company’s levels of indebtedness and cash flow;

(2) Its reliance upon credit markets to fund short-term obligations;

(3) And whether the overall scope of operations subjects revenues to foreign exchange risk.

This last point introduces one of the tradeoffs likely to occur now that the Fed will be moving out of the stimulus business. Tapering will create a rise in interest rates. With the departure of cheap credit, we are going to witness another round of dollar weakness. That will put some pressure on the bottom lines that are dependent on operations in countries where the dollar has forex problems.

And this relationship introduces what may be the biggest impact of all.

Oil is the New “Storehouse of Value”

As I have noted in earlier editions, the traditional position of gold as a basic barometer indicator of market health is being replaced by crude oil.

In this case, I’m referring to the way in which futures contract pricing for oil provides a better gauge of market value as gold loses its “luster” as a contrarian play. Until the last six months or so, investors tended to buy gold as a hedge against declining market performance. As the market weakened, gold would usually strengthen.

Well that certainly has not been happening of late and is not going to return anytime soon. Gold had served as a bridge mechanism between market performance and the value of the dollar. That position is now being taken over by crude prices.

As a result, it is oil prices that will benefit most from the departure of cheaper money as interest rates rise in a post-stimulus environment.

Now, the tapering will be gradual, and is always subject to a reintroduction if the economy falters. The rate of tapering is certainly going to influence how quickly bond yields rise and what the resulting interest levels will be.

This is the important point. As interest rates rise, so will the attractiveness of oil futures contracts – or “paper barrels” – as a surrogate barometer and, thereby, an attractive investment quite apart from the genuine value of the underlying “wet barrels” available for actual delivery.

Tapering is not single handedly going to spike oil prices. But I can tell you it will add a proportional “enticement” to oil prices.

Keep your eye on this. As it kicks in, Iwill be providing ways to move on it with selected opportunities across the energy sector.

PS. There’s good reason to be concerned about the Fed and the dollar.   However, I’ve found a new way to make money. It has nothing to do with stocks, bonds, or even options- but it can hand you as much as 20 times your investment. Go here to learn more.   

Source :http://oilandenergyinvestor.com/2013/12/fed-taper-means-oil-prices/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 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