The Energy Report for Monday, August 30, 2010
Big Bad Ben! Commodity bears be on notice: Ben is coming to run that big bad deflation out of town. Ben Bernanke has made it clear that the Fed will step up if prices go down. Those words should bring comfort to commodity bulls that have been under assault from an array of weakening economic indicators. That worn out song "for an extended period" may change to "forever and a life time" and the Fed stands at the ready by the printing presses ready to print at a moment’s notice if price fall too far.
It is clear as Mr. Bernanke says that monetary policy continues to play a prominent role in promoting the economic recovery. And if it plays a prominent role in the economic recovery, it is a major factor in promoting the price of oil. Without the Fed's help, oil prices would be collapsing under the weight of near record supply.
When the Fed takes steps to fight deflation it directly supports the price of oil. It does it in two ways. One way is because it weakens the dollar. The other way is that the Fed flooding the system with money will hopefully inspire some economic activity and some demand. Still oil may not go straight up because we know that extra printed money is data dependant. So the timing and the "when and if" of this extra stimulus will keep the market guessing.
Oil traders will have to focus on the macro pictures as the Fed will have the potential to make or break this market. Tropical activity in the Atlantic may also keep us unguarded. Hurricane earl is not expected to go into the Gulf of Mexico yet there is another tropical wave behind it. Stay tuned! Make sure you are signed up for my daily energy report and make sure you get signed up for a trail of my daily buy and sell points. Just call me at 800-935-6487 or email me at pflynn@pfgbest.com. See me every day on the Fox Business Network.
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