Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

What the Fed's Interest Rate "Hold" Means for Crude Oil Prices

Commodities / Crude Oil Sep 21, 2015 - 12:56 PM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: The nine years of historically low interest rates will continue in the wake of Fed Chairwoman Janet Yellen's decision to not hike rates – to not yet remove the proverbial punchbowl from the easy-money party.

It was a classic "50-50" proposition; it didn't seem likely the Fed would move to roil global markets, but given the perceived strength of the labor market, a hike wasn't out of the question.


Before Yellen decides to pull the trigger, we'll see price volatility spiral across all global markets – especially when it comes to crude.

So now the oil "doom and dread" crowd and their bearish predictions are running rampant.

Here's why they're dead wrong…

The Irrational Frenzy Surrounding the Fed's (In)Decision

Rarely has a decision (or lack thereof) by the U.S. Federal Reserve engendered such a frenzy among market analysts and investors.

But let's be honest here. Any eventual hike isn't likely to exceed 25 basis points (0.25%) and will be a stand-alone. This is hardly going to be the breach in the dam that results in a series of increases unfolding every month or so.

And bond markets have already factored this in, with rates across the board rising much beyond the projected Fed move.

Still, there is the emotional reaction to the hike, and that is certain to inject another bout of volatility.

This is a matter of concern for other markets…

Last week, I visited several European countries where many conversations I had touched upon the Fed decision. What's interesting to me is that most of my contacts would have preferred the Fed to just get it over with. A move on Thursday would have allowed the effect to occur and then markets to adjust.

Remember, as the United States prepares to leave central bank manipulation of fixed-income issuances, Europe, China, and others are embracing economic stimulus as well.

That contrast could exacerbate the market's reaction to any interest rate hike this year.

So what specifically does this mean for crude?

The Short-Term Effects of a Rate Hike on Oil Prices

The presumption is that a rise would put immediate pressure on crude oil prices by making purchases more expensive in foreign markets.

This is because a rise in rates results in dollar-denominated bonds becoming more attractive, thereby increasing the exchange value of dollars against other currencies.

And that's what will have the greatest initial impact on oil. Because the vast majority of oil sales worldwide are denominated in dollars, a rise in the dollar means it costs more in other currencies to buy a barrel of oil.

Conventional "wisdom" holds that this has an adverse impact on demand. All other things equal, there may be a change, even if short-lived.

However, the real effect on demand centers on what impact the rise in both the price of oil and the exchange value of the dollar will have on a range of economic matters…

It's Demand That Really Determines Long-Term Energy Prices

In this respect, the broader usage of energy (beyond simply that of oil) will be at issue. Market demand for all manner of energy will ultimately be determined by genuine demand, not by stimulated usage from lower prices.

After all, almost without exception, depressed prices (such as we've experienced in spades during the past several months) tend to increase the use of energy. And as energy becomes cheaper, end users increase consumption.

But the real impact will be felt across a broader range of commodities – metals, processed products, natural gas, even electricity traveling across borders.

Yet in all, this will be quite manageable, with the negative impact of any interest rise in my view greatly overestimated.

What will take a bigger hit are the artificial pressures that have been distorting the actual market rates for oil. Here the hyped short selling and multiplication of derivatives through which manipulators have artificially made profits from a crude dive will be distorted.

That bubble will be more pronounced, but that is going to be a problem primarily for those who created it.

That's karma for you…

Now, the important point to remember is this: Energy demand elements are emerging that far outweigh the significance of any Fed move likely in 2015. Because while the fixation on a rise in interest rates continues, aggregate expected global oil demand is moving up regardless.

Both the International Energy Agency (IEA) in Paris and the OPEC Secretariat in Vienna are poised to yet again raise year-end 2015 oil demand figures.

The current forecasts are already high, with the IEA predicting that global oil demand this year will average 94.2 million barrels per day, 1.6 million more than last year.

For next year, the IEA is forecasting 95.6 million barrels per day.

And supply won't be able to keep up with rising demand. Global oil supply, mostly from non-OPEC producers, fell by 600,000 barrels per day in July.

So the fundamentals paint a picture of tightening oil supply at a time of increasing demand.

That will be where the real long-term pricing of oil is going to be determined. Because as long as the world demands energy – and those demands are increasing – the energy sector will prosper.

And we'll find ways to make money.

Follow us on Twitter ;@moneymorning and on Facebook.

Source http://moneymorning.com/2015/09/17/what-todays-fed-decision-means-for-oil-prices/

Money Morning/The Money Map Report

©2015 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.


© 2005-2019 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