Phil Flynn: Crude Oil And The Fed

The Fed did not inspire the oil market even if they laid the groundwork for more quantitative easing in the future. With a glut of supply in the front end and the expiration of the October contract, the Feds less than glowing deflationary description of the economy was not enough to keep the oil bulls optimistic. When the Fed said that it prepared to provide additional accommodation (or printed money as I like to say) to support the economic recovery and fight off what they perceive as a deflationary threat, oil struggled to find its footing even as the financial and metal world responded. Gold dutifully rallied to all time high, oil prices continued to crumble and the reason was clear.

When the Fed tells us that household spending, while rising, is being constrained by high unemployment or that housing stats are at a distressed level, it is hard to get too excited about energy demand at a time of near record high supply. The question is not whether the Fed statement was bullish for oil because it was, but the question really is how far oil would have fallen if it were not for the Fed pointing to more quantitative easing. You see the price of oil can’t fall too hard because of its impact on overall inflation or deflation expectations and it can’t rally too high because we are in the weakest time of the year. With the October contract expiring into a near record.....Read the entire article.

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