Oil dips after China raises reserve rates, again

The Saudi king announced higher subsidies in February and March for housing and benefits to military and religious groups supporting his ban on protests. The perks are meant to prevent the kind of unrest that halted oil output and imperiled Muammar Qaddafi's rule in Libya, holder of Africa's largest crude reserves. The increase gives the Saudis less leeway in playing their traditional role of using spare capacity to temper prices.

It seems every time I go on vacation, the world goes crazy. Gas prices surged and oil has a correction and some Fed officials seem oblivious to cause and effect of their own policies, and yet in China, they are starting to realize that perhaps their currency manipulation is adding to inflation.

Last week Janet Yellen Vice Chair of the Board of Governors at the Federal Reserve, speaking to the Economic Club of New York said, "Some observers (such as myself) have attributed the recent boom in commodity prices to the highly accommodative stance of U.S. monetary policy, including the marked expansion of the Federal Reserve's balance sheet and the maintenance of the target federal funds rate at exceptionally low levels. Such an interpretation of recent developments naturally leads to the conclusion that the Federal Open Market Committee (FOMC) should move promptly toward firmer monetary conditions. Indeed, some have even raised the specter of a return to the high inflation of the 1970s in arguing for the urgency of monetary policy tightening."

She goes on to say, "Increases in energy and food prices are, without doubt, creating significant hardships for many people, both here in the United States and abroad. However, the implications of these increases for how the Federal Reserve should respond in terms of monetary policy must be considered very carefully."

Ms Yellen said that she will make the case that recent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy. Oh yeah? How so, Ms Yellen? While I will give her that rising prices have been influenced by rising global demand and disruption of supply, it's also due to the reduction in the value of the dollar and the stimulative nature the Fed policy adds to that demand. If Fed policy is helping the economy then it is also helping commodity demand. Do you get that Ms. Yellen? You cannot have it both ways. Fed policy can't help the economy expand on one hand and not impact demand and price on the other.

It is great to be back!

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.

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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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