This page has been archived and commenting is disabled.
Did The Fed Intentionally Spark A Commodity Sell-off?
Submitted by Leonard Brecken via OilPrice.com,
The intention here is the bring facts to light so the public can decide.
I’m not quite sure what to believe on how and why oil prices remain more than 50 percent below free cash flow break even for most independent E&P companies. I know for sure it’s not just one reason and is more likely a confluence of events.
Part of the reason oil prices broke new six-year lows is tied to hedge funds shorting equities and pressuring equity pricing through shorting oil. Another reason is the desire of private equity firms to buy assets on cheap and some banks seeking M&A fees. Obviously OPEC policy has a part to play. There is also no doubt that EIA statistics mistakenly leave the impression that production has remained resilient throughout the summer. But the spark that set the ball in motion was the dollar strength as every major money center bank in the U.S. recommended going long EU equities and long the dollar because of further monetary easing in Europe.
The inverse correlation between the U.S. dollar and oil prices in June was virtually 100 percent, but that has changed more recently, as I have noted previously. At that time, investors here in the U.S. plowed into biotechnology and technology and went short oil as if they knew what assets central banks were going to buy and not buy based on all the free money from Europe and Japan.
Since the financial crisis began the cozy relationship between money center banks and the Federal Reserve, since the bail outs, is well known. For example, Goldman Sachs’ deep ties to the U.S. government are notorious and, not surprisingly, they led the charge in calls for a downturn in oil. So has the media, as I have extensively documented all year here.
On the other hand, oil inventories on paper in the U.S. were rising into the fall of last year for sure while the economy was weakening in the U.S. and in China, the largest importer of commodities. So the merits of weaker commodity prices stand on their own to an extent. The correction to $70 from $100 was justified, but the crash to levels not seen since the crisis of 2008-2009 are overblown. Now the cries comparing the 2015 crisis to the 1986 oil demise rise as well. Are economic conditions that bad?
For oil, demand has greatly accelerated, in fact. Then why go long the riskier, higher beta technology that, at their highs and still to this day, are still being pumped? To make matters worse, record short positions in oil futures and equities still exist, eclipsing even the 2008-2009 meltdown. So where did this long tech, short commodity trade derive from and why? One possibility is the Federal Reserve itself; either indirectly, through monetary policy, or directly.
When the markets corrected last fall, Fed officials did not shy away from additional use of monetary policy or Quantitative Easing (QE). The cries from Wall Street were as loud as ever for it.
By early 2015, the economy had weakened, and GDP dropped below 2 percent growth on an annual basis. But Wall Street’s cries were largely silent, other than to say the Fed shouldn’t raise rates. The Fed, on the other hand, instead of threatening to ease, is instead threatening to tighten; the opposite of what we heard when markets fell similarly in 2014. The question is, why the change, despite fundamentals weakening?
One theory is that some within the Fed realized that QE wasn’t working, and never worked, thus another path was needed. But what alternative did they have, since rates were already ZERO?
So maybe they changed course and took a strong dollar policy vs. a weak one to intentionally weaken the commodity sector and thus boost consumer spending. Throughout this down turn, that message has been repeated by Yellen herself many times, as a source of economic stimulus and for sure has been repeated over and over in the media and the talking heads of Wall Street.
Wall Street is notorious for not fighting Fed policy, so they turned to other asset classes such as technology to blow that bubble up even further. But then why was there such a desire to close the Iran deal so suddenly, which would further add to global oil supply?
This theory isn’t as farfetched as it initially seems, especially considering that Wall Street has been investing based on central bank policies for 6 years now, moving money where easing occurs around the globe and putting very little into real fundamentals. It’s something to consider in explaining prices.
- 28181 reads
- Printer-friendly version
- Send to friend
- advertisements -


End the Fed! Until we defeat this terrible beast, we will beslaves in our own country. This is the #1 issue. 99% of the other issues stem from the Federal Reserve! Stay focused on the true enemy. Don't let the media distract us from reality.
End the Fed!
I think the answer is a resounding no. The US government loaded up on expensive oil for our strategic oil reserves. I believe the FED is a patzi for the US gov, if they planned to unleashed the strong dollar and thus kick oil prices downward, they would have waited to buy. Makes no sense, unless they are incompetent, and/or evil.
As you drop the time-value of money to zero (ZIRP) you stop time. No, not liternally, but financially. Any debt problem can be sustained indefinitely at 0%. Roll the debt forever.
It makes things live on well past when they should have died.
That is why normally unsustainable financial situatons are persisting far longer than any of the PhDs and "experts" have predicted.
Guess what happens if you unleash NIRP?
Perhaps there is some truth to this story, as it seems some of the folks with better sources than us sheep have taken large positions in energy and even coal of late. Perhaps they've heard something the rest us us will read about after the first of the year.
Global growth is like a three legged stool increasingly missing all three legs. Population increases are declining, GDP growth declining, and private credit growth declining. In the absence of these, the final source of "growth" is government debt (deficit spending plus monetization whose principal is never intended to be repaid, interest costs never remotely borne) being substituted to prop up declining demand.
http://econimica.blogspot.com/2015/08/global-growth-3-legged-stool.html
Returning to basic math for a momemnt, something still doesn't addup here. Economic growth results in growth in comodities consumption, economic contaction results in declining commodities consumption but what we have globally (And yes I fully understand that China's numbers can't be trusted) is declning rates of economic GROWTH which should, therefore, result in declining INCREASES in commodities consumption. Inventory distortions can influence the pattern but only over the short-term. What we have seen, however, is a 50% collapse in Commodities consumption in a still-growing, if slowing, world economy.
This is illogical and there are clearly other factors in play. Speculation is certainly one part of this and IMHO this might very well have been amplified by covert CB policies.
This is the way that the FED kicks the dollar out of the Reserve currency status, then with inflation again in place they are in control.
Strong dollar in the short run for a weak dollar in the long run.
Meant to add but couldn't edit, world economic growth is also obviously not correctly calculated. Absent the money printing, the REAL economy has been, at best, in recession for many years. The CB's have amply demonstrated that they would push the system into collpase rather than admitting they were wrong.
A three legged stool where an inch is sawed off each leg in succession, until all you have left is your fanny sitting on the ground. And the next inch to be cut will be pretty painful.
.
,
?
;-)
,,|,,
The fed does not want a strong dollar. The dollar has losts about 97% of it value since 1913 when Wilson signed the Federal Reserve act.
You know when old timers tell you they used to get gas for $0.20/gallon. Well, it still costs about $0.20, if you use pre-1965 dimes. For the most part, prices don't go up, its just he dollar losing its value.
End the Fed!!!
+1. Correcto. USD is up as petro dollar derivatives unwind. As treasuries are sold off, no longer needed for reserves as well. There is a balloon going up and up and at some point pop goes the weasel.
And no rate hike either that blows US debt sky high.
Good example 1967 Ford Mustang in 1967 = 50 oz gold.
Today 50 oz gold = 60k BMW or Mercedes.
The average price of the oil in the reserve is $29/bbl.
If they actually did that it, come to think of it, would not surprise me, what with the academics ignoring reality.
Consumers accelerate purchasing in inflationary times to "beat price increases" and defer purchases in deflationary times to "wait for lower prices".
That behavior is well documented. Period end of conversation.
So why not try something else harebrained that has no chance in hell of working; par for the course.
Desperation, if so.
But actually, I don't buy it because I think prices are going down.
I don't think we need to end the federal reserve.
Lets give them another chance. They can't be that bad guys.
Im sure if we all just sat down and talked about this rationally they would come around.
Haha. Yeah, that'll work. Forget about the 100+ years of bad policies that have devauled our dollar by more than 97%. There were/are so many people involved with the Fed throughout the years that it would be impossible to school them all on Austrian economics.
It's just like obamacrae. Repeal it, and replace it woith free markets!!
Somebody said there will be costs for Ukraine
Austrian Economics? Mises? Isn't he one of THEM?
My problem is Oilprice tends to push a certain agenda and they present only one set of numbers from one point of view......
Are you serious? Do you really want CONGRESS RUNNING THE MONEY SUPPLY?
Better idea: treat the Fed for what it is, an independent subcontractor to the US Treasury.... AND RE-COMPETE THE FED
Picking winners and losers, deserves nothing less to be hanged for Treason....i would be cheering, more than Israelis on 9/11, to see Greenspan, Bernanke and Yellen hanging from lamposts
Cause she's Yellin for deflation?
Go with the deflation, be one with the deflation, create margin calls that will be paid down by selling off commodities that, because they are being sold off, will get even cheaper. That's the ticket.
Then what?
Cheap commodities are going to stimulate people making stuff to purchase? When folks don't have money?
Help me here....
Cheap commodities are going to stimulate people making stuff to purchase? When folks don't have money?
You could look at it like this. Manufactures, manufacture. they have to keep their factories running making something or else THEY face a margin call. Lower input costs mean they either make more stuff or sell it cheaper. So consumers get a "raise" without getting an increase in wages.
I've been thinking this has been the plan for sometime. Pop Housing Bubble 2.0 and strengthen the dollar, if only slightly, and consumption would pick up. At the very least I think that's the new strategy.
I know that the boys at Goldamn are going to spend their well saved money from falling prices on more hookers and blow!
Stimulating as all hell!
God hopes the FED actually gives a crap about the real economy.
They can't pop Housing Bubble 2.0 because the majority of the losses would need to be booked by them.
In my area homes need to be cut by 2/3rds to be realistic. I saw a trailer park home built in 1977 listed for $85k with a $250 per month community fee.
WTF
Guess the middle class dream is going to be living in a trailer park soon.
We sold my grandmother's three bedroom condo in the Midwest for $52k.
Yesterday, my home was worth $165k per zillow.
Today, put a $700 coat of paint on it.
Got a notice from Zillow that my home is now worth $185k.
Un-fucking-believeable!
I realize that it was mere coincidence, but is it possible that we actually have assholes live-time monitoring houses via satellites? (Well, I may be a priority to watch, given my history, but has nayone else had something like happen?)
Can't see it, besides it implies they have a rational, predictive plan. Am not sure their thinking by now is all that lucid.
Better: technology creates more O&G (fracking), plus O&G found nearly everywhere by everybody (see Egypt's BIG natgas find?)
High O&G prices act to "soak up" dollars loose around the world; and now with ZIRP, everybody worldwide is borrowing in dollars (see Ambrose E-P at the Telegraph following this for years now)...adding to more commodity capacity.
Now must payback, and the demand for dollars goes up, compensating for low O&G prices, but causing more commodity collapse
HOW TO FIX: "Dollarize" another big LatAm country that's fucked itself with crazy socialist policies & currency manipulations....guess who?
Who says commodities are cheap? What was the price of oil, copper, natural gas etc before the bubble economy?
Consolidation. The smaller players all loaned large to develop mines that are now going bloke, or soon will, and will sell at a fraction of the investment price and big players clean up the upstarts and increase their portfolio and market share, plus remove competitors. Then the market will pay what the market will be capable of paying. They will then adjust production to maximize their margin again, and make it harder for a real competition on price to arise.
(and several other things)
The peak of oil prices was at the top of a mania induced by the war on terror. Prices had to rationalize sometime. There is no more mania in oil prices.
Funny how people still think $100 oil is norm when it was obviously due to QE. Just look at the timeline. Oil was $40 right before QE1 started in spring 2009. Then it goes to $110 during the height of QE3. After QE3 ended, it goes right back to $40. It's no different from all other commodities, real estate, stocks, bonds etc. Without the continuous flow of Fed easy money, everything will collapse.
Well there is at least real demand for oil, so won't collapse too much further.
But a massive fuel gouging exercise in underway in parts of Australia, TAPIS fell 100%, and price at the bowser fell about 10% at present compared to the former levels. Falling AUD did eat up a large proportion of the difference though, but its clear the thieves control fuel prices even when the oil price falls there is next to no economic benefit flowing back to real-economy. The oil company gougers just take it, because our system is so corrupt, they can, and nothing happens. NOTHING!
May as well de-float the AUD for all the good that's been doing.
Oh, and for sure, national headline inflation is pegging at <1%, regardless ... yeah ... right.
The oil company gougers just take it, because our system is so corrupt
Well if there was no demand at $100 a bbl the oil companies coundn't take it. As far as I know no one is forced to buy oil. Yet. Medical care OTOH....
Try commuting two hours each way to Brisbane and you'll get it. It's optional only if you don't want to work, and pay the other bills and debts.
There's difference between making a profit, and ruthless profiteering.
So the central planned hologram is all we have left? They have never included the undo option in their interventions. Probably part of the plan.
New ZH guy: WTF do I care if the commodities sell off in a 30 day period or less?
WTF do I care if the up and down of the market is rigged for a day or week?
1. My beef is the rigging of the Food we eat, and the water we drink and the energy we use
2. Commodities are the things we need, and they are the same things we need in an emergency or big war
3. Commodities are the life of our country
4. Federal Government is in league with the FED and TBTF Banks and they put all our savings and lives at risk by having our food and utility at risk in the markets
5. National Stockpiles and War Reserves is the idea to protect households from this shocks and these rapes from Monopolies
Just IMHO.
The insane fluctuations in paper prices thanks to the HFT algos have paralyzed the supply chain.
It takes months for a product to move from idea to retail product. How are you supposed to plan your business if you have no idea what anything will cost even one month down the road?
What you do is price for the worst case scenario and leave it there.
How about some numbers to bolster your argument?
US imports 7.5 million barrels a day. So the $70 fall in the price of oil is saving the US $525 million everyday or $191.6 billion a year.
Plus the big US banks coordinated an attack on oil and probably made another $100 billion at least.
That is not a bad stimulus.
Oh sure, because I really need 1,000 yds. of copper wiring for my addition to my McMansion and $1.00 less per gallon is going to help me pay that $1,200/month health insurance premium and $8,000 deductible.
Time to go out and buy a new boat and an R.V. to pull it with!
Green shoots and mustard seeds! Raise rates 2% Yellen!
You can do it! Liftoff is here!
The Fed may be complicit in others' schemes. Say that the US and/or Saudi Arabia wanted to crash oil prices as a weapon against Iran and Russia, and some Saudi-employed game theorist came up with the idea that crashing oil prices were a win for the Sauds against the frackers, whom Obama hates because he hates US carbon fuel production. So those guys go to the Fed and get the Fed to back the Sauds' budget deficit. Why would the Fed do this? Well, as you and comments point out, the reduced oil price is also a stimulus to the US economy, so the Feds could rationalize it. You know who else has to be happy about low oil prices, is China, and even Europe. But it was never really the Fed's own plan.
And was there insider trading during all of this? Sure, why not.
Andrea Rossi and Leonardo Corporation receive its first ECAT patent in the United States from the US Patent and Trademark Office, USPTO.
See ECAT Patents or external link to ECAT Patent at USPTO. The Patent covers the ECAT as a Fluid Heater based on the Rossi Effect in all its details. Since the Rossi Effect is the main source of energy of the ECAT, this means that the ECAT Core Technology is protected by this patent. The Rossi Effect is based on the exothermal reaction between Lithium and Hydrogen which is catalyzed by Nickel or any other Group 10 element in the Periodic Table, including Palladium and Platinum. The Rossi Effect is a new type of high energy density LENR based exothermal process discovered by Andrea Rossi. - See more at:
http://ecat.com/news/e-cat-patent-granted-by-uspto#sthash.hVbvunBB.dpuf
I'm sure it's just another internet hoax, cold fusion isn't for reals. Right?
Coupla guys are getting close to something. This is a retired Turkish policeman demonstrating his machine at Delft University. Magnets:
https://www.youtube.com/watch?v=mHW6b1aFPfU
A motor powered by magnets? Could you give the Maxwell Equations governing that?
Close to something? Sure. Fleecing the ignorati.
When looking for new science that overturns 150 years of engineering (applied science) I look to retired policemen.
Fusion is the energy equivalent of the Holy Grail, maybe it will elude us forever. But what about Thorium? It's fission yes, but more energy than uranium and no toxic by products. Let me guess, big oil, gas, coal, and nuclear regulatory agencies blocking it?
Of course Rossi - who was once jailed for fraud - has something.
A new fraud.
And a patent? Well. Marvelous. Except there is no longer proof of perfommance required to get a patent.
Here's the problem ol'Yeller.
I can't spend more if the reduction in base commodities doesn't translate into lower prices for finished goods.
Gasoline should be $1.65 with $45 oil, instead it is $2.60. A price that used to be equal to $75 oil.
Even though grain prices have plummeted, a 12 oz box of cereal from a major brand is still $4.50. Coincidentally, that box used to be 15-16oz for $3.50.
Even if gasoline was $1.65 and cereal $3.50, the savings would not come close to making up for the doubling of health insurance premiums, and the 8% yearly increase in property taxes.
In an environment of declining sales, corporations would rather keep unrealistic margins than allow savings to be passed to the consumer. CEOs and directors suffer from a mental disease where they believe reducing prices will lead to the end of the corporations they helm.
The real issue is unplugging the masses from the Matrix. 90% of the world's corporations need to be eradicated. The TBTF banks, Monsanto, Facebook, Google, etc. The problem is that the idea of constructive work has been far removed from the minds of the people. Ask someone on the street to build something and you will find that hardly anyone has the skills to produce anything of value.
Hardly anyone knows how to cook. It is becoming a foriegn concept.
Because of the consolidation of power, a retailer like Walmart going bankrupt would decimate the ability of a major part of the population to obtain goods they need. There aren't small independent stores anymore. Without TBTF banks, where would people get the capital they need to start a new store?
The Zionists created this new world for the sake of making sure destroying the source of their power would also mean the destruction of everything else. If you destroy the TBTF corporation you start race wars, riots, and send us back to 1850. Is the USA alone you would have 150 million people who won't know what to do with themselves, who are completely incapable of taking care of themselves.
Do not overstate their intelligence and foresight with this nonsense. Deflation in commodity prices through ZIRP and QE in a low growth environment is an unintended consequence, and explicit failure of what unprecedentedly easy monetary policy was alleged to accomplish.
Too much cheap money keeping too many defunct businesses alive, trying to produce increasing amounts of goods, in a world where supply is far outpacing demand. As prices fall, increasing amounts of goods must be produced for the same revenue, worsening the supply/demand disequilibrium and prices continue to fall. It's a vicious cycle that terminates when either massive bankruptcies occur, and production is cut, or the credit markets decide there is no way they will get their money back based on interest rate and commodity price trends. The credit markets have already started to wake up--we just need to see the bankruptcies...
The fed has managed to fail spectacularly, again.
Hooey. From hat hat did you you pull the %50 figure?
Total BS Unless you are in the Artic or way off shore, breakeven in the USA is south of $40BB. Certainly not 50% above.
"I’m not quite sure what to believe on how and why oil prices remain more than 50 percent below free cash flow break even for most independent E&P companies.
QE and ZIRP, created a boom in production, NOT a boom in economic growth. Yes, there is a great distinction between the two, even though GDP does not capture that distinction. GDP, of course is a worthless measure, for a multitude of reasons, and not the least of which being that it is defined in terms of a FIAT currency.
What it really boils down to is most of modern economic theory, upon which they base their decisions, is complete nonsense.
"One theory is that some within the Fed realized that QE wasn’t working, and never worked, thus another path was needed. But what alternative did they have, since rates were already ZERO?"
That alternate path will forever be FISCAL STIMULUS. Did we forget that option in all the libertarian low tax rhetoric here?
The Fed Chairman can get on his bully-pulpit and harangue Congress for a big infrastructure bill or big Green Energy bill or for, if you must, dropping money from helicopters bill.
If you want to know what the alternative to Monetary policy is then that is it. Fiscal policy works well but you people are so Anti-Keynesian that you have forgotten about what has worked well in the past.
Growing our way out of a deficit used to be commonsense, people.
and when your project is over what then?
nothing. its a one time deal.
1985- 2015 :: 31 yrs and light crude oil from Saudi Arabia was in July/1986 $10.76 bbl.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=ISA4990008&f=M
http://www.oilempire.us/peak-timeline.html
Note: JFK assasination and the Texas oilmen -- this goes without saying from the beginning?!? Cheney/LBJ/*Standard Oil (*Multi Trillion$$$ Dollar'S's Rockefeller Family...think about it!)
Truman had to have Saudi Arabia for America's Nat'l Security at all cost--- Note2: Tyler has touched upon the SWF's/FX many tymes... esp. recently:: Nov/1950 'ARAMCO' (SA`dependency~ 66 yrs., and still counting
http://en.wikipedia.org/wiki/Golden_gimmick
I heard that there is an world wide economic crises and that oil demand went down. But what do I know.
The Fed can only be partly blamed. The commodity sell off is coming from a massive change in commodity supplies in almost all commodities including crude because of technological innovation in the US (world wide crude supplies have probably been underestimated as no one ever guessed that fracking was going to perhaps double supplies). Same as Natural gas with new discoveries and now at less than 2.70 (in Oct 14, it was 4.00) electric power which has just been newly benchmark by Buffet at less than 4 cents per KWH when less than 5 years ago if was 24 cents per KWH! We are experiencing a massive revolution in energy prices caused by significant technological and capital investments. Forget interest rates or even the US$ : it is no longer the full story or explanation for the massive expansion of supplies in commodities on account of 0% capital. The only way to change this is to let interest rates rise to allocate capital in order to limit expansion of capacity which is deflationary...