Dollar IS a fundamental of crude

Quantitative Ease Off


The Petroleum markets took a bit of a breather after surging the first few days in August on rising speculation that the Fed, worried about anemic Job Growth and a less then sustainable rate of economic activity, will revisit the nuclear option and print more money to get the economy moving again.

The Wall Street Journal added to this speculation by raising the possibility that the Fed may reinvest the cash it receives when its mortgage-bond holdings mature and buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is was expected to do. This speculation drove traders back into the "carry trade" as the dollar tanked against other major currencies most notably the yen as traders viewed the U.S. recovery softer than in other parts of the globe. Yet despite some less than spectacular data the oil market anyway backed off the easing talk and tried to focus on weak demand. Of course that move led to maddening comments from some analysts that said the market is not reflecting the fundamentals but following the dollar. Well Get it through your head, the dollar is a fundamental. Once again I am frustrated why I am hearing that oil is ignoring the "fundamentals”; there is nothing more fundamental than a change in the value of the currency a product is valued in.

Now I know some analysts have a narrow view of the word fundamental and think that the word just means the study of supply and demand. Yet the truth is it goes far beyond that. It is the qualitative and quantitative information that contributes to the value of a commodity. It encompasses more than just supply and demand but the relative value of the currency that a particular commodity is traded in. This extends to other outside influences from weather and human behavior and how a certain event of factor may influence price. The reason I harp on this is because the misunderstanding of this word leads to bad trading decision making as well as raises false accusations that speculators are manipulating the market. It is a misunderstanding that can damage the economy and cause discomfort to those who believe there is an evil speculator plot to destroy the economy. The API is not out to destroy the economy either. Last night the API reported that U.S. Crude stocks fell by 776,000 barrels as imports fell by a sizeable 1.4 million barrels per day. The API also reported that gasoline stocks increased by 2.3 million barrels which was a bit of a surprise and that distillate stocks increased by 1.1 million barrels.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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