Oil tops $50 on belief that Fed's actions will stimulate economy
There's nothing like accommodative monetary policy to gladden the hearts of the oil market's bulls. Oil raced six percent higher Thursday, gaining $3.12 to $51.26 per barrel on the belief the U.S. Federal Reserve's additional quantitative easing Wednesday will provide the boost needed to jump start the U.S. economy from its pronounced recession.
Energy Trader Paul Schmidt says the jump start analogy is apt. "Think of the U.S. economy as a car that's been immobilized with a weak battery, and the Fed as a tow truck with great charging power. The Fed is providing the boost we need to get the economy running again," Schmidt said. "And that's bullish for oil." Schmidt added that he was long with an oil trade, with a monthly contract.
The Fed's action "will help heal credit markets, which should make credit more available to businesses and consumers, over a period of quarters," Schmidt added.
The other major energy commodities also jumped Thursday at mid-day on the emergence of bullish oil sentiment. Heating oil surged 10 cents to $1.36 per gallon, unleaded gasoline added 8 cents to $1.45 cents per gallon, and natural gas rocketed 40 cents to $4.09 per million BTUs.
$100 oil ahead? Not likely
Still, investors thinking that oil is going to quickly make a return trip to the $100-plus levels recorded during the leverage bubble are using the wrong economic model, Schmidt says. "Investors have to keep in mind, we're still looking at months of modest oil demand and especially low gasoline demand in the U.S.," Schmidt said. "We had more than three million drivers taken off the road in the U.S. in the past year and China's growth rate has been effectively cut in half, so that implies only modest oil demand, even assuming a U.S. recovery late in 2009."
With the above in mind, Schmidt thinks $60-65 oil is possible in 2009, "if the Middle East flares up or if Iran does something irresponsible," but more than likely, "oil will trade in a $40-55 range for the bulk of the year."
Oil Analysis: Is this the demise of the oil bears? That is, is the end of the oil bear market at hand? Not so fast. The Fed's action Wednesday is shifting sentiment, but the "reality of the facts on the ground," to borrow a phrase from former Israeli Prime Minister and General Ariel Sharon, says oil's path of least resistance remains lower. There is considerably excess oil in inventory, and until OPEC cuts production and/or economic growth sops up that excess, a $40-55 range for 2009, as Schmidt noted, looks likely.
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health bill?
Fed stalls on Chinese bank deal, costs taxpayers $1.7 billion
Dell in a handbasket: Should founder Michael Dell resign?
Reader Comments (Page 1 of 1)
3-19-2009 @ 4:08PM
Nick said...
Gold is up $70 and no mention, but oil's $3 move is big news?
Reply
3-19-2009 @ 6:36PM
sanford said...
I would agree with lazzaro ,,I think that the economy is in very bad shape and even with the added stimulus of the fed ,,it's goijng to take a very long time ,to get us out of this mess ,,The increased price of oil and other commoditiies is a result of the belief that an investment in commodities is somehow a protection against inflation ..But I don't think inflation is going to be much of a problem ,,because whereever you look there is still an excess of supply ,, Also , when you look at the demand side of the equation ,,I don't believe we're going to have much of an increase in demand ,,either even with the added stimulus from the fed ,,First of all people have been wiped out ,,When they look at their IRA 's and the price of housing ,,they are not going to be in the mood to spend ,,and a we may have had a change in the consumer's long term behavior ,,there is less of a propensity to spend and more of a desire to save ,,This change in behavior must be taken into account ,,
Reply
3-19-2009 @ 4:20PM
hzip said...
i think the rise in oil is most to do with the obvious drop in the value of the us dollar and treasuries with the extraordinary monetization, huge us purchases of its own treasury bonds, buying back of toxic assets, huge bailouts of the banking, and auto and auto supply industries, not to mention the massive stimulus package, etc.
There was a time, long, long ago, say last September (2008) when i thought that 500 billion dollars was a mind boggling amount of money. That is dwarfed, so many times over, by today's massive spending (well in the trillions).
Our GDP is stagnant, if not significantly contracting. Our spending to GDP ratio must surely be outrageous. I'm amazed that China has not asked the fed to buy back the us treas bonds that they hold as well. I think that the reason for the rise in the prices of oil and other commodities is obvious, and I would expect oil would go up alot more in the not distant future.
Reply
3-19-2009 @ 4:27PM
james moskos said...
As an American, I knew it would not be long before the Oil executives (OIL BANDILDOS) would raise their ugly heads to screw the American people again. The oil executives, AIG and the unscrupolous politicians should go to Jail. Maddoff is on his way to prison so should these scumbags.
Reply
3-19-2009 @ 8:55PM
Bill Brown said...
Jim:
You are exhibiting a class envy attitude. If this country continues in this pattern, we won't have to worry about enemies abroad, we will end up fighting each other and the army. This business of class envy is being driven by the media and the government. It will destroy this country. If you are going to stay on this bandwagon, you may in the end become one of too many victims. We all need to work together and stop pointing fingers.
3-19-2009 @ 11:06PM
Iridium said...
No it is not class envy. Are you somehow saying that the greedy investment banks that got the rules changed for them so they could enter the commodity trading market are actually doing something justified? Are you serious?
These people are manipulating the market. They are taking away the purchasing power of actual energy companies and forcing them to pay a higher price for a commodity that is rightfully thiers to bid on.
We were at 70% of the oil contracts being traded by speculators outside the oil business. They are corrupting the market for personal gain. This is supposed to be illegal.
The oil speculators are domestic terrorists. They should be branded as such and executed for treason. We can not leave our economic future in the hands of fraudulent manipulators. The facts that suport the market put oil at $20 a barrel or less.
It is not class envy that these people use their immense wealth to manipulate the market. Class envy states that you wish you had what a rich person has because you would live in the same way. No person should be allowed to manipulate a market. It is not ethically or morally justified to steal from people to enrich yourself. When ethics and morals are thrown aside it is the job of the ethical to purge the garbage from the system.
3-19-2009 @ 4:51PM
GREG said...
Oil is up because the dollar is down I love the spin of this story LOL
Reply
3-19-2009 @ 5:09PM
hzip said...
Greg nailed it!!!!! The headline for this story is so laughable.
Reply
3-19-2009 @ 5:13PM
Will said...
This is not a good thing, because the thing the Fed did will not get the economy going, so oil will slide back down again. What idiot thinks higher oil prices will help the economy. Unemployment will go much higher, and since so many people are out of work, the spending that the Fed hopes to create WILL NOT HAPPEN. Those that do have jobs aren't going to go out and blow money, because they may not have jobs in the future. No, this is not going to work, and it will make things a whole lot worse. ONLY IDIOTS WOULD GO OUT AND BUY NEW CARS, OR ANYTHING ELSE.
Reply
3-19-2009 @ 5:26PM
sgentilejr said...
The writer of the article Joseph Lazzaro is way off base on his assessment. ALL commodities are increasing in value. Gold, silver, copper, ng etc. etc. all have been going up in price. Not because of increased current or increased future demand, but instead because of the expected future lower value of the US dollar.
The Fed pouring money out to ease credit to make loans easier to obtain will not help. Far too many people and many businesses already have far more of a debt load than they can repay and that is why we are in this mess. Making loans easier to obtain, is akin to making alcoholic beverages easier to obtain for an alcoholic. No one has ever gotten out of trouble by borrowing more. Borrowing more just digs a deeper hole.
Reply
3-19-2009 @ 5:31PM
hzip said...
I would also think that common sense dictates a hunkered down stance. I would think it would be very prudent to try to save for possible rainy days ahead, and avoid taking on any unnecessary debt.
But then again, it seems the government does all it can to reward, ie bailout, the opposite, being those that spend wrecklessly and without any caution to avoid getting underwater in debt
Reply
3-19-2009 @ 5:30PM
Pete said...
Say goodbye to any economic recovery if gas prices go above $2 a gallon.
Reply
3-19-2009 @ 5:37PM
hzip said...
I am sick and tired, absolutely fed up with the philosophy of rewarding wreckless, greedy, spend thrift lifestyles at the expense of those that try to be responsible and do the right things financially.
I wanted a much bigger more expensive house and a Lexus and BMW in my driveway, too!
Reply
3-19-2009 @ 5:41PM
D Goldman said...
I can guarantee you one thing. If gas prices spike we are doomed in this country. The one saving grace right now for families is that gas is affordable. As a result, job searches can be conducted, people can afford to eat out more, and they can even travel a little more thanks to low gas prices. If this escalates wildly like it did last year, all of this will be gone and it will have a direct effect on food sales , travel, hotels, and other service oriented businesses. It is the one nail not yet put into the coffin of the American economy. If it is, we will all see just how bad this economy can get.
DG
Reply
3-19-2009 @ 6:06PM
David said...
Yep, we all went broke over the summer and charged our gasoline on our credit cards when the price was over $4.00 a gallon because we didn't have a choice and couldn't afford to pay with cash. We needed to get to work everyday. And now we're paying for it with higher interest rates on our credit cards and higher monthly minimum payments. The economy was on the edge of the cliff then, and the high price of gasoline pushed it over. All of those rotten speculator bastards on Wall St who cleaned us out by running up the price of oil should be put in prison for the rest of their miserable lives.
If the price of gas gets much higher than $2.00 a gallon now, it will destroy any hope we have left to recover from this disaster. Cheap gas is the only thing saving us from another Republican Great Depression.
Reply
3-19-2009 @ 8:02PM
John said...
Want to stop this? We can, just stop spending your money!!!
Let wall street go suck pond water. Let's show them that they don't run the country, WE DO they need us to spend.spend.spend. SO, SAVE SAVE SAVE in the end
who will win.
Reply
3-19-2009 @ 8:36PM
John said...
This sucks, Your all looking at the wrong people.
We the people, did this to our self'! The banks fed
us all the money that we wanted, and we took, and
we took,and we spend and spend. and wall street
just sucked it all in. and know where are we. WE THE PEOPLE.... Well, if the price of oil goes up over $2
kiss your ass good by. If WE THE PEOPLE don;t
stop spend. WE THE PEOPLE did this and WE THE PEOPLE can stop it. STOP SPENDING YOUR MONEY.
Reply