Sometimes you can sweep inflation under the rug, but sometimes it's in full view. China, after massive government purchases of a range of commodities, was able to flood their markets with tons of goods to restrain their inflation rate, yet in the UK they are not quite as fortunate. China's consumer price index rose 4.9% in January from a year earlier, higher than last month's 4.6% increase and well below the expected 5.4% forecast. The UK followed China's much milder than expected inflation rate with a blistering 4% reading that was twice the Bank of England's target rate, increasing the odds that the Bank of England will be forced to raise rates.
China of course used its own massive cash reserves to restrain inflation by purchasing tons of commodities to flood their domestic markets. China imported 21.8 million metric tons of crude oil and 3.85 million tons of fuel in January to help meet winter demand and keep prices low. Yet it wasn't just oil that was imported to keep prices low, it was just about everything else that you can think of.
The market has seen through the transparent efforts of massive government spending to cool inflation in China. While they might be momentarily fooled by the cool data, the truth is that the massive imports into China reveal the truth.
Copper rose to a record high. Brent Crude soared. Sugar and coffee took off as well as silver for all of those flat screens TV's that they are making for domestic and international consumption. Now some say that commodities are rallying because they won't have to raise rates as aggressively or it may be because they know that the Chinese will be forced to continue to flood domestic commodities to keep inflation under the rug.
You say you want a revolution, well don't you know the Brent is going to be all right. From Bahrain to Iran, the people are rising up helping to send the Brent crude market into a tizzy. Leaders like President Ahmadinejad are on guard as the seeds of discontent that began in Tunisia are now spreading to OPEC nations like Algeria, Libya and of course Iran. Cruel government repression of civil and human rights coupled with the extra incentive of rising food and energy costs are causing the Middle East to boil over.
Brent crude hit over $104 a barrel as the April Brent crude seems to be leading the risk premium rally. You could see quite clearly the impact the Brent crude was having on the April WTI contract as the trade is using the WTI as the hedge against the Long Brent play. March WTI showed weakness without the influence of the expired March Brent and the realization that the delivery point for the soon to expire March WTI. Brent Crude Hit the highest level since 2008 while WTI send a four month low.
The crazy spreads are creating wild plays in products as well. Heating oil and gasoline are staying stubbornly high as the Brent crude may impact supply and price in the New York harbor. Troubles in Europe and refinery outages have kept prices high but that may soon change.
Reuters News reports that, "Europe is set to export around 300,000 tons of gasoline to the United States in the next few weeks following an unusual reopening of the arbitrage, trade sources said on Monday. Europe produces more gasoline than it can consume but shipments to the United States are typically unprofitable outside of the peak demand summer driving season when Americans typically take to the roads. Traders said that around 300,000 tons of gasoline, or 10 cargoes of 30,000 tons each, have been booked on a spot basis since late last week.”
Reuters goes on to say that "Outright gasoline prices in Europe have not kept pace with the sharp rally in Brent crude futures so far this year and margins for the motor fuel in Europe are at the lowest since September 2009."
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.