There is no doubt that Ben Bernanke can inflate the commodity bubble and at the same time let some of the air out. Ben Bernanke has somewhat disappointed commodity bulls by not being more forthcoming about the size and the scope of the next round of quantitative easing. While today the Wall Street Journal is raising legitimate concerns about the potential backlash from his policies because of rising commodity prices and the surge of investments in some emerging markets.
The Wall Street Journal writes, "The Federal Reserve's latest effort to juice the U.S. economy is making many investors in emerging-market and commodity-producing nations confident the rally has longer to run. Others see trouble ahead, concerned too many investors are jumping into the rally and that these markets can't keep raising if the U.S. economy stays sluggish. Already this year a record $60 billion has gone into emerging-market stock and bond funds... and investors expect another $500 Billion..."
The question becomes what will happen if investors all run for the exits at the same time. Commodity inflation is now thought to be desirable for the Fed and in the short run could have diminishing returns to the commodity producing nations, if demand is impacted. OPEC is already complaining that a weak dollar is pressuring them to continue to juice prices if they can, and there seems to be this uneasy sense of invulnerability for the prospects in the Chinese economy.
While we saw record imports of Chinese Crude last month it seems now, according to Dow Jones, that the Asia fuel oil crack spreads are narrowing as crude prices decline; contango in November/December 180-cst swaps narrows from last week to around $3.50/ton; December/January around $3.25/ton in contango. Fuel oil fundamentals remain bearish as supply outweighs demand but spreads could improve if lower outright prices spur some fresh buying, traders say. Asia bunkers mostly lower; demand average and likely to improve this week with buyers expecting prices to fall further.
Will QE work or will it backfire? The Wall Street Journal says that economists and strategists are convinced that more bond buying by the Fed may keep yields low but many doubt it will fix the economy.
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 firstname.lastname@example.org.