Oil rallies following Triple Crown of Fed actions

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Yet oil’s rally has a dark side and that is the growing violence in the Middle East. A terror attack on our Embassy in Libya and anti-American demonstrations being carried out in Egypt, Libya, Yemen, Morrocco, Tunisia, Sudan and Lebanon seems to suggest that the ignorant, hateful minority is trying to hijack the dreams of freedom and a better life throughout the Arab world. Some say that an unintended impact of QE 3D could add to those tensions.

The AP is reporting that Israeli Prime Minister Benjamin Netanyahu has suggested that Israel cannot rely on the U.S. to act against Iran's suspect nuclear program. In an interview published Friday, Netanyahu hinted Israel may have to strike Iran even without U.S. support to prevent Tehran from building a nuclear weapon. The comments indicate Netanyahu is not backing down from his thinly-veiled criticism of the Obama administration, despite a phone call from the U.S. President this week that was meant to smooth over their differences.

The AFP reports, "Iran should "understand the message" that it needs to do more to address global concerns over its nuclear program, following the United Nations atomic agency's latest board resolution, the watchdog's chief told AFP.  "I hope that Iran clearly understands the message and engages with us on substance," International Atomic Energy Agency director general Yukiya Amano said in an interview with AFP.  "This is our objective... For Iran, cooperating with the IAEA should be in their interest," Mr. Amano, who has been agency head since December 2009, said Thursday at the IAEA's Vienna headquarters.

Natural gas attack! The Energy Information Administration reported that working gas in storage was 3,429 Bcf as of Friday, September 7, 2012, according to EIA estimates. This represents a net increase of 27 Bcf from the previous week. Stocks were 342 Bcf higher than last year at this time and 284 Bcf above the 5-year average of 3,145 Bcf. In the East Region, stocks were 80 Bcf above the 5-year average following net injections of 38 Bcf. Stocks in the Producing Region were 147 Bcf above the 5-year average of 957 Bcf after a net withdrawal of 13 Bcf. Stocks in the West Region were 57 Bcf above the 5-year average after a net addition of 2 Bcf. At 3,429 Bcf, total working gas is above the 5-year historical range.

Earlier this week the EIA said as reported by Reuters that upwardly revised peak U.S. working natural gas storage capacity by about 3.3 percent from  last year's estimate. As of April 2012, EIA said demonstrated peak capacity — the  sum of the highest working gas inventory level observed in each reporting facility over the last five years — climbed 136 billion cubic feet to 4.239 trillion cubic feet.

A Reuters poll of 28 industry participants in August showed experts had reduced their estimates for end of building season inventories to below capacity limits, but most still expected storage to peak before winter at a record 3.973 tcf.

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Think of all the possibilities! They are unlimited, especially after the Federal Reserve used the nuclear option with open ended QE3D and an extension of the low interest rate pledge for another year! Commodity bulls will be dancing the twist as the music plays on with the Fed buying the long end and selling the short end in what can only be described as explosively bullish for the markets.

Ben Bernanke rightly said that this had nothing to do with politics and the Fed can’t do it alone! The Fed felt like it had no choice. With under-employment over 20% and the fiscal cliff ahead, the Fed did everything it could and the markets are on notice. Whether or not you agree with QE or do not, with the third round of QE in place, you might as well enjoy what will be an incredible ride!

The Fed printed a new floor for commodities when, “the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

The Fed also said that, “support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”

In other words, you can’t fight the Fed because they will continue to buy and print money so get out of the way. We know the Fed is serious because it's more than was expected and because they did not just pick one possibility, they picked all the possibilities. QE, twist, accommodative extension, or the Triple Crown of bullishness!

Yet oil’s rally has a dark side and that is the growing violence in the Middle East. A terror attack on our Embassy in Libya and anti-American demonstrations being carried out in Egypt, Libya, Yemen, Morrocco, Tunisia, Sudan and Lebanon seems to suggest that the ignorant, hateful minority is trying to hijack the dreams of freedom and a better life throughout the Arab world. Some say that an unintended impact of QE 3D could add to those tensions.

The AP is reporting that Israeli Prime Minister Benjamin Netanyahu has suggested that Israel cannot rely on the U.S. to act against Iran's suspect nuclear program. In an interview published Friday, Netanyahu hinted Israel may have to strike Iran even without U.S. support to prevent Tehran from building a nuclear weapon. The comments indicate Netanyahu is not backing down from his thinly-veiled criticism of the Obama administration, despite a phone call from the U.S. President this week that was meant to smooth over their differences.

The AFP reports, "Iran should "understand the message" that it needs to do more to address global concerns over its nuclear program, following the United Nations atomic agency's latest board resolution, the watchdog's chief told AFP.  "I hope that Iran clearly understands the message and engages with us on substance," International Atomic Energy Agency director general Yukiya Amano said in an interview with AFP.  "This is our objective... For Iran, cooperating with the IAEA should be in their interest," Mr. Amano, who has been agency head since December 2009, said Thursday at the IAEA's Vienna headquarters.

Natural gas attack! The Energy Information Administration reported that working gas in storage was 3,429 Bcf as of Friday, September 7, 2012, according to EIA estimates. This represents a net increase of 27 Bcf from the previous week. Stocks were 342 Bcf higher than last year at this time and 284 Bcf above the 5-year average of 3,145 Bcf. In the East Region, stocks were 80 Bcf above the 5-year average following net injections of 38 Bcf. Stocks in the Producing Region were 147 Bcf above the 5-year average of 957 Bcf after a net withdrawal of 13 Bcf. Stocks in the West Region were 57 Bcf above the 5-year average after a net addition of 2 Bcf. At 3,429 Bcf, total working gas is above the 5-year historical range.

Earlier this week the EIA said as reported by Reuters that upwardly revised peak U.S. working natural gas storage capacity by about 3.3 percent from  last year's estimate. As of April 2012, EIA said demonstrated peak capacity — the  sum of the highest working gas inventory level observed in each reporting facility over the last five years — climbed 136 billion cubic feet to 4.239 trillion cubic feet.

A Reuters poll of 28 industry participants in August showed experts had reduced their estimates for end of building season inventories to below capacity limits, but most still expected storage to peak before winter at a record 3.973 tcf.

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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