Oil Update - EIA, CFTC, and USD

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Light sweet crude fell 5.8% yesterday, a crash level one day drop. The EIA weekly storage report set off the selling. Crude closed at $63.35. It was $3.60 below Brent, a lower quality oil. The CFTC has started hearings this week and traders are claiming that they are completely politically motivated. Their evidence? - the CFTC's own reports. Oil was also damaged by a rising dollar. The dollar was rallying on the 'good news' that the U.S. was printing money to buy its own bonds (no that doesn't make any sense). As has been the case since the beginning of June, when the dollar goes up, everything else went down.

The EIA reported that oil storage was up 5.1 million barrels. Distillates were up 2.1 million barrels, but gasoline stocks fell 2.3 million. The mainstream media reported that distillate stocks were at their highest level in 25 years (take that with a grain of salt). Year over year distillate demand is down 10.7% and jet fuel demand dropped 13.3%. Gasoline demand is up by 0.8% however. At his time of year gasoline is the key demand driver for the oil market.

The CFTC has started its hearings this week trying to track down the evil speculators that have been manipulating the oil market. Interestingly, on Monday the Wall Street Journal reported the CFTC "plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices - a reversal of an earlier CFTC position." On Tuesday, the Journal reported that the CFTC is "updating- but not necessarily reversing - a 2008 report that blamed supply and demand, rather than speculators" for last year's spike in oil prices. So let me summarize this news for you. The CFTC already investigated this subject last year and found that the oil market like every other market operates on supply and demand. Not trusting its own work and the basic laws of economics, it has decided to investigate again. To get to the truth, it is holding hearings. However, before the hearings have even begun and data gathered, a decision was already made to blame speculators in the report that will be issued. At this point, you should be smelling a giant rat the size of Washington, D.C.

I actually don't doubt for a moment that there is speculation driving the price of oil to non-market prices. It's not taking place on the trading floors in New York, London or Singapore however, but from government offices on the Potomoc and Thames. To help clarify this picture, it might be a good idea to change Ben Bernanke's title from Fed Chair to Speculator-in-Chief. At least then, the public would know what he is really up to.

NEXT: Economy is Bad, but GDP Report is OK

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Bernanke and Natural Gas

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Fed Chair Ben Bernanke was on Capital Hill for a second day of hearings yesterday. This time he appeared before the Senate. As he did in his testimony before the House, Bernanke spent a great deal of time assuring the Senate that the Fed could "exit" the policy moves of the Fed (including increasing its balance sheet by over a $1 trillion and massive increases in bank reserves) he has made before inflation pressures mount. This is like saying Pandora's Box can be closed again after it was opened. I do not know if our elected representatives burst into hysterical laughter or chuckled in an amused manner when Bernanke made these statements. This was not recorded in the hearing transcripts.

Once again Bernanke also emphasized that "monetary policy remains focused on fostering economic recovery". Apparently the focus isn't working. A number of senators complained that businesses in their states reported that banks were refusing to lend funds because of the crisis. Since nothing in U.S. government policy requires them to do so and the Fed and U.S. Treasury have made it possible for banks to earn riskless money, why should they lend? Bernanke at least admitted that reducing unemployment was "difficult and challenging". So his policies aren't working for anything that they are supposedly 'focused' on fixing. Maybe that's because they are focused on creating inflation instead.

In one of the great hypocritical moments in contemporary American politics, Senator Chris Dodd asked Bernanke, "When can the American people expect the recovery that they have funded?" Dodd himself publicly demanded the policies Bernanke has followed and supported the programs the Treasury has implemented. He also has a history of questionable dealings with Fannie Mae and was an enthusiastic supporter of government policies that led to the Credit Crisis. Now of course he's complaining the Fed and Treasury haven't cleaned up the mess he helped create. For his part, Bernanke said that Congress should try to reign in its spending. This of course would cause the economy to contract and make Bernanke's policies even less effective than they already are.

But the American public can rest assured that the Fed's no interest rate policy will continue no matter what. Bernanke made it clear that interest rates would not be raised any time soon. My guess is that the Fed is also pumping huge amounts of liquidity into the financial system currently (so there would be no complaints from congress about the stock market falling apart). This would explain both the stock rally and the weak dollar (trading just above its breakdown level for the third day in a row). Gold closed at $953 an ounce yesterday, a six-week high.

In presumably unrelated news, the weekly Natural Gas storage report was out this morning. Storage was up 66 bcfs versus an estimate for a rise of 67 bcfs. Stocks are 458 bcfs above the 5-year average. Natural gas futures fell 0.6% after the report was released.


NEXT: Is It 1998 All Over Again?

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21



This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.