The Curious Case Of Post-QE Oil Hangovers

Tyler Durden's picture

In a strange centrally-planned 'see-it's-only-transitory' trick, crude oil prices have suffered a significant post-coital hangover each time the Fed has engaged its QE-warp drive. As the following chart shows, the current swing lower is ahead of pace compared to the previous two 'schemes' which stopped dropping after 10 days (QE2) and 20 days (QE1). It's almost as if someone wanted to prove that extreme monetary policy does indeed have no inflationary impact on the price of energy - or perhaps its just an over-crowded and obvious pre-QE trade coming undone in a hurry (like stocks?)

Pre- and Post-QE performance of WTI Crude (normalized to 100 on day of announcement)...

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Stackers's picture

Oil is dropping, but last time I checked gasoline is still up at all time highs. Yep, still $4/gal

Chris Jusset's picture

Since Bernanke now controls a majority of the US economy, we should ask him what it all means?

CvlDobd's picture

It just means he is very generous!

Truth - Something somehow discreditable to someone.
- Mencken

Hype Alert's picture

It means he wants his new boss the same as his old boss.  And he wants to keep his job.


Too bad his role in the history books though.

mtkd's picture

It will be 50 years or more before the history books can write about Ben with any context.

By then he could be seen as a hero for architecting viable soft landings after massive credit expansion periods.

Recessions of the future may come to be known as Ben Corrections.

icanhasbailout's picture

demand destruction, bitchez

Pure Evil's picture

In 50 years nobody will give a crap because it will be the land of Dumb & Dumber.

Idiocracy, the movie, explains all.

GetZeeGold's picture



It means you'd better get short crude......we need $1.80 gas by election time.


LMAOLORI's picture



His role in the history books should be comparable to other failed Socialists he aided the implementation of a welfare state both at the top and the bottom of society.

Forbes: Richest 400 Americans' Net Worth Jumps 13 Percent to $1.7 Trillion

snip (more at link)

The net worth of the richest Americans grew by 13 percent in the past year to $1.7 trillion, Forbes magazine said on Wednesday, and a familiar cast of characters once again populated the top of the magazine's annual list of the U.S. uber-elite, including Bill Gates, Warren Buffett, Larry Ellison and the Koch brothers.


8,786,049: Yet Another Record for Americans Collecting Disability


Record 46 Million Americans Are on Food Stamps


USA Economic Freedom Ranking: From 3rd in the world to 18th in a decade

Political you betcha $$$$ 

Who's better for stocks: Obama or Romney?





trebuchet's picture


Surely you are not suggesting the Oil market is manipulated????

NO WAY!!!!!

Its like saying the banks fix interest rates in the interbank lending market!

Things like that don't happen in a free market economy, especially when banks are allowed to trade for profit as well as on behalf of clients... they would kill each other to compete the profits away, right?

NewWorldOrange's picture

It's ALL manipulated. "It's almost as if someone wanted to prove that extreme monetary policy does indeed have no inflationary impact on the price of energy"

That applies to almost every bit of economic news that's come out for at least months now. EXACTLY THE REVERSE of what normally happens and that reason would tell you should happen. Negative feedback mechanisms that restore balance and equilibrium to dampen excesses have been turned on their head.

Next up: Structural engineers, paid by the Fed, decide to design suspension bridges so that passing air currents increase dangerous swaying. Cuz we need more broken windows and broken bridges. Stimulates the economy. And makes for AWESOME footage!

Can there be any doubt TPTB would LOVE to start a bunch of major wars right now?

1) It's the opposite of what's rationale

2) It allows them to easily establish a TOTAL police state and save themselves from tar and feathers

3) Gives them an excuse and distraction for what they've done

4) Allows them to detain, kill, whatever, the people who know what's really happened and are telling it like it is

5) War "gets us out of a recession" (broken window fallacy.)

World War III is coming real soon.

"Billions and billions..."

geewhiz190's picture

it means the refiners and marketers will make a fortune. now we know why Buffett bought phillips 66. i guess he got the word from the saudis a few months ago

LMAOLORI's picture



It pays really well being a crony capitalist like warren bailed out buffet or soro's they are speculating on the destruction of the dollar. As for the Saudi's nah they wouldn't interfere in our election to help obama would they? I am sure they are just concerned about Americans (sarc)


Saudis Offer Extra Oil to Control Prices


Hohum's picture


You're proof positive of addiction to cheap gasoline.  If you go back to 1999, oil has increased 9X, gasoline maybe 5X--be happy.

Also, oil stockpiles high, gasoline and diesel not so much.  Finally, the drop happened over three days so far--be patient.

SeattleBruce's picture

Stackers - look for gasoline prices to drop in 3, 2, 1 - just before the election!  We've been saved by Obamney!

larz's picture

I feel compelled to repeat that the gas station owners and operators do not benefit from that 'spread' they are the little people its politicians (taxes) and BP Amaco etal that are the criminals

Flakmeister's picture

Buy the cash flows and forget the price

PBT, COSWF, SBR, etc....

agent default's picture

I think we are coming to the point where the market no longer responds to monetary policy, no matter how loose or silly it gets.  I am not sure what the implications of this could be.

Seer's picture

"the market no longer responds to monetary policy"

What They call the "market" does, but that's not the market now is it?

Nothing is REAL anymore.  The REAL has been hypothecated away, welcome to the world of the virtual; long live the VIRTUAL! (the man behind the curtain: Edward Bernays)

Deep79's picture

Or maybe with all the QE priced in, we are slowly going back to fundamentals

Oil should be around 70 then


fonzannoon's picture

how do u price in infinity?

Deep79's picture

well its only 480 billion a year, not that much if you ask me. Ya I would have said are you crazy a few years ago, but we now throw trillions around like its nothing.

we will get back to actaully to focusing on data.

FED made huge mistake IMO, why now? when we are correcting 10-20%, then save it, now when we correct 10-20%, what are they gonna do. I am actually still in shock the FED did it.


fonzannoon's picture

then u will be more shocked when the data gets worse and their response is to do more.

Deep79's picture

typical ZH answer, no thought just say they gonna print more

They keep printing, the bond market crashes, then GAME OVER


PiratePawpaw's picture

That would be a better retort if they didnt keep printing more. Just sayin.

gjp's picture

Why would the bond market crash?  They are the ones buying all the bonds?  What's to stop them from monetizing everything?  Clearly scruples won't do it.

The risk to endless printing is to the currency, not to the bonds.  And they don't seem to give a rat's ass about long-term risk to the currency.  Something about all being dead in the long-run.  But with this kind of recklessness, the long run may be a lot shorter than they think.

Deep79's picture

We have massive creditors (CHINA)

You think they will let that happen, the FED will buy all the bonds, that is a ZH fantasy.

Yes, currency would collapse, as well as Bonds.


fonzannoon's picture

China has been buying gold hand over fist. They will make through the other side of our bond market collapse. We will have some bigger issues. By the way that guy Gundlach even said TODAY he is planning on the fed owning 100% of treasuries. So lump him in with us? At least I am in with good company....


Urban Redneck's picture

China hasn't bought additional bonds with its increasing foreign currency reserves since hell froze over several years ago.  Just rolling the maturities doesn't help cover the debt of this year's budgetless spending orgy in Washington.

LMAOLORI's picture



China still lead buyer of U.S. securities

September 18, 2012


Global demand for U.S. securities is still strong, with China remaining the largest foreign holder of U.S. debt, according to the Treasury Department's latest report on foreign holdings.

The U.S. government's top international creditor continued to add to its holdings, albeit modestly, according to the July Treasury International Capital report, which measures the flow of funds into and out of U.S. securities, including Treasuries, agency-backed securities, corporate debt and stocks, as well as banking capital flows.

In July, Chinese investors increased their holdings by $2.6 billion to $1.15 trillion.


socalbeach's picture

That's about a 0.23% increase in their bond holdings in July lol.

100 * 2.6 / (1150-2.6)

Urban Redneck's picture

Propaganda for masses  vs.  Hard Numbers


September 2010 - Chinese UST Holdings 1151.9B

June 2012 (Most Recent Comp) -   Chinese UST Holdings 1147.0B

Net US Treasury Holding Change -0.4%

September 2010 - Chinese F/X Reserves (ex. gold) 24542.75B

June 2012 - Chinese F/X Reserves (ex. gold)  32400.05B

Net F/X Reserves Change  +32.0%


Panafrican Funktron Robot's picture

"You think they will let that happen, the FED will buy all the bonds, that is a ZH fantasy."

#1 buyer of US bonds:  The Fed.  This is an actual, present reality, good sir.

Seer's picture

This is Last Man Standing!

China WILL stop buying US Treasuries for sure: that which cannot continue forever won't- duh.  Growth is dead, in which case China WON'T have the bandwidth to continue this game.

How it is currently going down, if it's not already obvious, is the US is still winning by outlasting all the other plummeting nations.  The US is orchestrating a collapse of competing currencies (China's will never really get off the ground in this regard, not after we see its emperor is naked [refer to recent article about the missing collateral in China (iron)]).

Alas, being the best looking horse at the glue factory really isn't anything to brag about...

All stated, the reality is that the US, ignoring the paper stuff, has a greater array of physical (natural) resources than any other country.  If it all goes isolationist the US will be the best place to be (as long as people can adjust to a reduction in their outlandish levels of consumption).

fonzannoon's picture

Dude have they proved the "typical zh answer" wrong yet? Someone is excercising a lack of thought here and it's not me.

It's not even deep thought it's pretty goddamn simple....

Have you considered what the fed is going to do when twist stops in December by the way? You think they won't fill that void with more LSAP?

Deep79's picture

I have no idea, and ti claim that you do is wrong.

The mantra here is print, print, print,

I dont buy it. Bonds will colapse long before that.


fonzannoon's picture

What is the mantra at the fed meetings? Maybe bonds do collapse long before that. I just checked my tax return and my carry forward losses remind me that I thought he bond market would have collapsed already....

Deep79's picture

thats funny about tax return joke.

But I suspect FED knows we are going down hard, wheather they come in or not, they might have saved markets for a few months, and when debt ceiling talk heats up and fiscal cliff talk heats up, we go down hard and FED and everyone ele blaims congress.

FED is left in clear, saying they did everything they could, even QE3 in september, blame Congress

fonzannoon's picture

the next move regarding the debt ceiling will be to finally eliminate it. just my opinion.

Panafrican Funktron Robot's picture

Financial repression is the entire game.  There is no other play for them.  Do you understand that a 10 year even touching 2% is a problem?

malikai's picture

Q: Why will they print?

A: Because the math doesn't give a shit about what any of us thinks they should do or what should happen.

I too did not expect it, but we all knew it would happen. Sooner or later.

Seer's picture

"I have no idea"

"ti [sic] claim that you do is wrong"

"Bonds will colapse long before that."

I'm confused, you say you have no idea yet you then give an idea...

You've got to base your "idea" on something.  Keep in mind that this isn't any "normal" going on here.

qussl3's picture

Open ended != Infinity.

If its about the flow not stock then Infinity only matters when the purchases are open ended in size per time period.

JuliaS's picture

Titanic was open ended. The bottom end just opened right up when it hit the iceberg.

... to this day it sits in many open-ended pieces somewhere at the bottom of the ocean.

trebuchet's picture

QEternity is a flow variable, so even if it is around forever, banks will just write more mortgages. 

Aset rotation in the great "Monetary Transmission Mechanisms" that the world economy has come to believe are the arteries of the modern economy.

Garbage in, Garbage out... doesnt matter if its all CB/banking accounting numbers shifting from one persons balance sheets to another, doesnt change the number of loaves you are gonna buy today or tomorrow, only at the margin, for the time being. 

Look beyond to the system, the world is still there. Last time i checked, the ~REAL economy was still getting by. 




MeelionDollerBogus's picture

calculus, limits, integrals (volume, at times)

CrashisOptimistic's picture

"Or maybe with all the QE priced in, we are slowly going back to fundamentals

Oil should be around 70 then"


Old normal thinking.  So the process of slowly going back to fundamentals had, what, a few thousand all reach the same conclusion in 10 milliseconds on Monday and with 104 contracts traded in 30 seconds before the event, then had 14,200 contracts traded the next few seconds driving oil down $5-- because all those folks slowly got back to fundamentals and they all reached that decision in 2 seconds of time?

The correct thinking is oil's price is being lowered by decree.  There is no free market, and if there was one of a magnitude to oppose the decree, the relevant people would be arrested.

The world has changed.  It's not what we grew up in.  There is no capitalism.  There is no socialism.  The world teeters on oblivion and governments will stop at nothing, certainly not at oil market corruption, to keep the wheels turning.

JuliaS's picture

Inflation - prices rising faster than wages.

Deflation - wages falling faster than prices.

Unless you're a central bank, to you it's all the same. Heads - they win. Tails - you loose.

Oil has been getting more expensive even as it fell from the $147 peak. More people could afford it back then, when houses still functioned like giant ATM's than today, when it's hovers around $100/barrel. The whole reason the price fell was because fewer could afford to drive or had places to commute to. Oil's getting more expensive even on the way down.

Panafrican Funktron Robot's picture

This is an important point.  There is no good outcome for us plebs either way.