Posts filed under “Energy”

Crude Oil hits $97

Ouch!

"Crude prices have spiked more than 20 percent in the last three
weeks. The jump is unusual because this time of year is known as a
shoulder season – marked by slack demand – between the summer driving
and winter heating months.

Crude is now at or near all-time
highs, even adjusted for inflation. The last time oil was this high was
the early 1980s, when it rose to $93 to $101 a barrel, depending on the
inflation calculation used and the oil contract cited.

Fighting
between Turkey and the Kurds in oil-rich northern Iraq, reports showing
demand outpacing supply in the fourth quarter, a falling dollar and
lots of speculative investing have all been cited as reasons for the
runup.

Crude oil prices have surged nearly five-fold since
trading below $20 a barrel in 2002. Analysts say surging global demand
combined with limited new supply is the main underlying factor.

The surge in prices has also attracted lots of speculative investment money, further driving prices higher."

Crude_oil

Chart courtesy of Barchart

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Source:
Oil hits another record above $97
Steve Hargreaves,
CNNMoney.com November 6 2007: 12:05 PM EST
http://money.cnn.com/2007/11/06/markets/oil_record/index.htm?postversion=2007110612

Category: Commodities, Economy, Energy, Markets

Headline of the Day II: $1 Trillion!

Category: Commodities, Contrary Indicators, Energy, Valuation

“Benign” Inflation, Added Surcharges

Category: Commodities, Data Analysis, Energy, Federal Reserve, Inflation

Inflation ex-inflation to be Official Fed Policy?

Category: Commodities, Energy, Federal Reserve, Inflation

Repeat After Me: There is NO Inflation

Category: Commodities, Energy, Inflation

Intraday Reversal

Category: Energy, Markets, Psychology, Technology

ECB on Core Inflation

Category: Commodities, Economy, Energy, Federal Reserve, Inflation

Fear of a Dollar Collapse, part II

Yesterday, we discussed the potential impact of the ongoing weakening of the US dollar.

Today, we look at a few printing press Money Supply issues. Our focus: The spread between the Fed liquidity action (a/k/a Repos) and the M2 money supply measures.

This is simply a measure of how much cash the Fed is injecting into the system.

The following Bloomberg chart shows the spread between the two of these monetary measures. It is quite instructive:

Mzm_m2_spread

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Speaking of surges: As you can clearly see above (bottom left chart), the amount of MZM (repos) versus M2 during 2007 is enormous.

This means that the Fed is "inflating" at a rate faster today than it did right after 9/11, or during the deflationary scare of 2003.

As we asked Wednesday night, "What did the Fed Chair and the FOMC see that spooked them into a half point (over) reaction?"  I am not sure what is was (and we’ve discussed many of the potential issues over the past 2 years), but the Fed is obviously scared witless. 

The manifestations of this free  printing press are many: Any commodity priced in plentiful dollars will cost more. Crude is now $82; and Inflation Fears Send Gold to 27-Year High.

Why? One way to think about it is supply and demand. Print ALOT more dollars and each one is worth a little less. 

Or, consider it this way: Extracting Oil or Gold from the earth ain’t easy: We have to explore for Oil, determine where it is, how deep, what quality, etc. Then we have to use lots of heavy machinery to extract it, ship it to where it gets processed, refined, used in chemical manufacturing. Some of it gets refined into gasoline, and it is then transported to a network of gasoline stations, and it gets pumped into your car — all for less per gallon than diet Coke or peach Snapple!

For gold, the process is not all that dissimilar.

Just crank up the printing press: Its cheap and easy. But why should us gold and oil producers exchange our hard won commodities (its hard work) for pieces of paper you people are simply cranking out for free? Either give us something of real value — or instead, we will insist on more of your crappy ittle pieces of green paper.

Thus, the inflationary repercussions of a "free money" policy. In fact, every commodity that is priced in dollars can potentially see much higher prices:  Gold, Oil, Wheat, Soybeans, Copper, Timber, Corn, etc.

Its easy to understand why inflation has been called The Cruelest Tax.

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BTW, for those of you without a pricey Bloomberg terminal on their desks, a good source for (free) data of this kind is the Federal Reserve Bank of St. Louis’ publication, Monetary Trends. There are always a solid collection of charts showing money supply, economic conditions, etc. Not to get too wonky on you, but this is simply pornography for econ geeks.

There are a few charts after the jump worth reviewing. For the less visual of you, they show that Money Supply continues to grow at a rapid pace, that bank borrowings are increasing.

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Sources:
Monetary Trends
Federal Reserve Bank of St. Louis’
October 2007
http://research.stlouisfed.org/publications/mt/20071001/mtpub.pdf

Where Crude Goes Now May Depend on Dollar
Futures Close Near $82
MATT CHAMBERS
WSJ, September 20, 2007; Page C1
http://online.wsj.com/article/SB119019169756632291.html

Inflation Fears Send Gold to 27-Year High
Weakening Dollar Also an Influence; Metal Hits $732.40
ALLEN SYKORA
WSJ, September 21, 2007; Page C6
http://online.wsj.com/article/SB119028926640733763.html

Read More

Category: Commodities, Credit, Currency, Energy, Federal Reserve, Inflation

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Category: Commodities, Energy, Federal Reserve, Inflation

Agriculture Break Out Relative to Energy, Commodity Index

Category: Commodities, Energy, Technical Analysis