Crude Oil prices for WTI were just $78 dollars in July, a month later they are $93.40 with supplies well above their five year average range, China decelerating at a rate not seen since the financial crisis, and US gasoline demand down 4.2 percent year-on-year and distillates down 2.8 percent.

So what the heck is going on in the Oil Markets? Well, just look at the S&P for your answer: Capital has flowed into assets based upon the expectation that Bernanke and his cohorts at the Federal Reserve will print some more money out of thin air in the form of some monetary easing initiative falling under the heading of QE3. (See Chart Below)

Will the Fed ever learn that they cause more harm than good in the Global and Domestic economy with these QE initiatives that are the proverbial sugar rush to asset classes on one hand, but cause far more structural damage to the economic recovery by adding a huge federal tax premium to gasoline prices in the process.

This just is the same old cycle over and over:

 

Stop this endless cycle and let the economy slowly work its way out of the deleveraging process in a natural, slow but solid growth trajectory which can actually build momentum upon each previous quarter instead of this push and pullback QE cyclicality that can never get out of its own way.

There are actually market reasons why prices should retreat in a slower growth economy, and this is part of the natural business cycle. But these QE initiatives never give the natural forces of lower input costs which given enough time to work their way through the supply chain can add a lot to stimulate creative and economic growth which is actually sustainable. And when the economy is really humming along market prices will increase just fine on their own accord. But artificially pumping the economy with steroids in the form of another QE3 Initiative is just self-defeating in the long run.

What are the actual benefits anyway? Bond rates have been extremely low; everybody who possibly qualified for a refinance has already done so at bottom basement rates. It doesn`t create any jobs which are based on demand. And oh by the way demand for more goods and services leads to more workers, but companies don`t need more workers if input costs are higher for consumers so they pull back discretionary spending in other areas to cover inflated gas prices that they cannot afford.

The US was built on consuming, and I am afraid the only consumption that will be increased is capital allocated to gasoline purchases, and in case you haven`t noticed there are zero jobs created by higher gas prices in the actual grass roots of the economic growth engine in the consumer and services portion of the economy.

The rise in Oil and Gas prices in the last month based on hopes that the Federal Reserve will boost asset prices some more should be the biggest warning sign that they need to stop this madness, and let the market down for a change. The goal is to improve the economic fundamentals, not push up assets artificially that create no actual jobs in the economy.

3 Comments on "The Sudden Rise in Oil Prices on QE3 Expectations Should be a Warning to the Fed"

Rick on Sun, 12th Aug 2012 12:17 am 



This is what Peak Oil looks like. AKA, the bumpy plateau. The price at the pump goes up, as the fake economy seems to improve. Then the higher price, drags down the sham economy. All the while, humans continue to burn millions barrels of oil per day, making each day worst.

In a nutshell, we as a species are putting a gun to our heads everyday, and most do not know it. One day, very soon, the gun will go off.

And once we move off the bumpy plateau, it’s downhill from there. Meaning most will be screwed. My take, in about 20 – 30 years. But, things are getting worst by the day now, even if you don’t factor in climate change. So, it’s hard to say.

BillT on Sun, 12th Aug 2012 1:48 am 



Rick, you got it right. The US economy has been dying for decades, propped up by the Federal Reserve (NOT a government department, just a cleverly named PRIVATE, for profit, bank.) It totally collapsed in 2008 and was plugged into the ICU printing press as a last gasp effort to keep the ‘for profit’ capitalist greed system alive.

But, it’s days are numbered and we will pay for it with higher taxes and higher costs as long as there is any financial blood left in the 99%. Oil is just the current, most visible sign of the times.

DC on Sun, 12th Aug 2012 7:13 am 



The question isnt why prices would go up with QE3, but why they wouldnt. Isnt that what happens when you keep debasing a curreny, you know…inflation???! And what products, services are going to inflate the fastest? Well, the ones that matter the most, energy and food.

No QE, they go up because population growth is pushing demand all on its on.

Do more QE and you add currency debasement to the mix

Thatll end well right?