Sunday, June 26, 2011

Do NOT Be Deceived, Falling Gas Prices To Be "Transitory"

Fascinating how "all of a sudden" the headlines are littered with "Falling Gas Prices" headlines:

Average Price for US Gas Falls to $3.63

Gas Prices Drop under $3.50 per Gallon

Price of gas drops 11 cents in the last two weeks

Gas Prices Fall Nationally

Drivers catch a break as gasoline prices fall

Gas Prices Fall Giving Drivers a Much-Needed Break

Gas Prices Expected to Drop to $3.40 a Gallon By July 4 weekend

Next we will be "treated" to headlines touting the "growing economy" now that gas prices have fallen.  Because, don'tcha know, all of the US Government and US Federal Reserve efforts to "boost the economy" have failed just because those damn gas prices have been rising.  LOOOOOOOOOOL!!!  If it were only that simple people,  but the sheep will believe anything as they are lead to slaughter. 

Bumbling Ben Bernake will tell anybody who is listening that rising gas prices have caused the economy to slow and begin to stall.  Great excuse Ben, but it ain't the truth.  Then we are told by Pinnochio it is only a temporary setback.  "Gas prices will fall soon, and we will be right back on the path to economic growth..."

Ben, if it wasn't for the rising energy and food prices...and rising prices in general...there would be ZERO growth in the economy.  The whole premise of growth in our economy is based on rising prices.  This it why it is so important that the Fed "meet its mandate" for an inflation rate that is two percent or less.  Hey, a two percent rate of inflation equals a two percent rise in growth...don'tcha know?

It is high time Americans wake up to the fact that over the last 40 years...the only real "economic growth" has been in the US Money Supply.  Rising prices = rising receipts = growth.  The greatest scam ever perpetrated on the human race.

And now "suddenly" gas prices are falling just as the great wizard predicted when he stated repeatedly that rising gas prices would be temporary.

In Bernanke's statement before his press conference last Wednesday he said the following:

In the medium term, the Committee also seeks to achieve a mandate-consistent inflation
, which participants’ longer-term projections for inflation suggest is 2 percent or a bit less.
Although the recent surge in commodity prices has led inflation to pick up somewhat in the near
term, the Committee continues to project inflation to return to mandate-consistent levels in the
medium term, as I have discussed. Consequently, the short-term increase in inflation has not
prompted the Committee to tighten policy at this juncture. Importantly, however, the
Committee’s outlook for inflation is predicated on longer-term inflation expectations remaining
stable; if households and firms continue to expect inflation to return to a mandate-consistent
level in the medium term, then increased commodity prices are unlikely to induce significant
second-round effects, in which inflation takes hold in noncommodity prices and in nominal
wages. Thus, besides monitoring inflation itself, the Committee will pay close attention to
inflation expectations and to possible indications of second-round effects.

Decide for yourself.  Inflation expectations are flying off the charts in my world.  And rising oil prices always get the blame for rising inflation...  BOOM!  Bomb the Oil markets, and suddenly falling Oil and gasoline prices are in the headlines.  Bernake was right!  High gas prices were only temporary...  Unfortunately, low gas prices might be even less temporary.

By Yra
Yesterday, it was such an easy game to play but now the IEA had entered and made it so much harder and it looks as though they’re to stay.

The early morning entry of the IEA into the market pricing of oil has given rise to a slew of conspiracy theories. I care not a damn about the theories but want to analyze the impact of the action and the effect upon the markets. Government actions, no matter how ill-advised, are to be understood and analyzed in the real and potential outcome on world markets.

The Obama Administration has been floating the idea of opening the SPR in an attempt to break the back of financial speculation in the energy and food sectors. It appears that the unilateral move by the Obama Administration would not go down well as many in Congress and elsewhere would have attacked it as an electioneering gimmick to drive down gas pump prices and attack the “locusts” on Wall Street. It seems that the move then became to internationalize the decision by using that “august” body the IEA.

In order to get the major participants to go along I am wondering what deals were made and what potential impact it will have on markets as we go forward. One analyst on TV I think had it very correct: Whoever crafted the action waited until the price of oil was already moving lower and when WTI was at the 200-day moving average, released the announcement so as to get the most price action, as so many long-term traders are geared to that 200-day moving average.

The rationale was that the Libyan crisis had removed 140 million barrels of oil from the market so the supply had to be provided by an international consortium of reserves. A grand alliance and a good headline. Interesting, though, that the U.S. contribution was almost exactly what the BUSH ADMINISTRATION released post-Katrina.

I am not making a statement about the Obama Administration, only trying to understand the market impact. The fact is that POLITICIANS OF ALL LABELS will use whatever tools are at their disposal to maintain power.

This type of action of not from the book of Saul Alinsky but from Richard Nixon. It is incumbent upon us as traders to analyze the events and look toward its potential impact:

As The IEA-OPEC Nash Equilibrium Collapses, Is A 1973-Style OPEC Embargo Next?
by Tyler Durden, Zero Hedge
Indeed, if Obama's reelection campaign is such an emergency that it requires tapping the SPR, what will happen when there is a real emergency: such as a repeat of the 1973 OPEC embargo, which set the stage for Volcker's last minute and very painful intervention to prevent the US economy from tailspinning into an inflationary supernova?

And just to make sure things get even more polarized, Dow Jones reports that the "International Energy Agency consulted Saudi Arabia, China and India before it authorized the release of some of its emergency reserves, the agency's executive director said Sunday."

"They understand, and they appreciate the action," Nobuo Tanaka said on the sidelines of the second Global Think Tank Summit in Beijing.

The release of some of IEA's strategic stockpiles is meant only to fill the gap in supply until higher crude volumes from Saudi Arabia reach the global market, he added.

Oddly enough, the leadership at the IEA is just as clueless as that of the US:

Separately, Tanaka said he asked China once again to join the IEA on Saturday. Although there hasn't been any official response, Tanaka said he was encouraged by China's recent statement publicly welcoming the IEA's strategic stockpiles release.

Of course they welcome it you idiot, because they will be buying everything your member countries have to sell, and thanks to your stupidity, at a welcome discount. And why the hell would China want to join the IEA when it gets all the benefits of participation, without any of the obligations of being a member (i.e., adhering to your retarded politically-motivated agenda).

Good luck buying it back at the same price when OPEC fires its own warning shot and announces it is reducing crude output for all remaining OPEC countries (ex. Saudi) by 10-15%.

You have to begin to releasing Oil from the SPR to suppress the price of oil as foolish as central bank selling of Gold to suppress the price of gold? Look at how that plan has backfired... Could last week's SPR release signal a new leg in the secular Oil bull market is near on the horizon? Both Oil and Gold will be more expensive to replace going forward from here...much more expensive.

DOE Announces Details Of Strategic Petroleum Reserve Firesale
by Tyler Durden, Zero Hedge
Following the earlier general announcement that the SPR would sell 30 MM barrels of oil a lot of questions were left unanswered, such as what kind of crude will be sold, where will it be sold from, and at what price. The wait for answers is now over: The DOE has just released all the missing data. Per Reuters: "Under the terms of the U.S. sale that were issued by the department, the government does not plan to stagger the sale of the oil and will offer all 30 million barrels in one bid sale. The department will offer "sweet" crude oil from three of the reserve's storage sites: Bryan Mound and Big Hill in Texas and West Hackberry in Louisiana. The oil will have a base price of $112.78 a barrel, a spokeswoman for the SPR said." Which does not however mean that this is the price at which the oil will be sold: "Traders can bid above or below the "Base Reference Price" of $112.78, which is derived from the last five days of trading of Light Louisiana Sweet crude oil, as assessed by energy pricing agency Argus. Companies will submit their bids for the oil through a special department website. Delivery of the oil to the winning companies would take place over the month of August. Winning companies would pay for their oil during the month after the crude is delivered." Which simply means that China will convert quite a bit of America's trade deficit from dollars into oil.

Or maybe this SPR release was just the first of MANY US asset sales used to drum up cash to make debt payments.  30 million barrels at $112.78 a barrel = $3.38 BILLION.  Nah, not really...the US borrows $4 BILLION a day...drop in the bucket.

Bankers Declare War on Commodities
Written by Jeff Nielson
Paper “fiat” currencies are humanity’s oldest Ponzi-scheme, and the current incarnation – the first global version in history – is about due to implode. Put another way, in the first 40 years of this Ponzi-scheme, the bankers have managed to reduce the value of our currencies by roughly 75% (thereby “confiscating” 75% of our wealth), and they are working even harder to destroy (i.e. steal) that last 25%.

Adding further weight to this argument is the obvious fact that there was no possible justification for dumping 60 million barrels of oil onto the global market at this time. The price of crude was not merely stable, it was moving lower – and even the higher quote for “Brent” crude was roughly 25% below its previous peak. Inventories are (at worst) stable, if not abundant. So where was the “emergency”?

Indeed, half of the oil came from the U.S. “Strategic Reserve”, which is explicitly (and obviously) intended to be used only in the event of a bona fide “emergency” in the oil market. The fact that there was no emergency, and the fact that prices were already falling indicates unequivocally that the only “purpose” for the IEA (and the Obama regime standing behind it) was to damage the oil market as much as possible. This would (did) illegitimately drag all other commodities down with it – effectively causing the banksters’ (worthless) paper currencies to rise in value.

We can further demonstrate the illegitimate basis for this assault on commodities by pointing to the wide assortment of vocal critics of this move. The U.S. business community, “Big Oil”, the Republican Party, and OPEC all severely criticized the IEA and the Obama regime immediately after this move was announced. When even such a collection of “strange bedfellows” can reach a consensus in their criticism of this oil-dump, it strongly suggests that the argument this was “pure manipulation” is both clear and conclusive.

This attack on the oil market, and by extension the entire commodities complex is as desperate as it is transparent. As with most manipulation of markets, any short-term benefits which are gained by bankers manipulating prices in accordance with their own, evil plans are lost when supply/demand fundamentals inevitably reassert themselves. Here even a Wall Street banker should be able to connect-the-dots.

As I mentioned earlier on, a drop in the price of oil is highly “stimulative” for all economies. What will this do? It will cause more economic activity, and more consumption all over the world, significantly increasing the demand for all commodities. Similarly, pushing down commodity prices inevitably impacts supply.

A farmer trying to decide whether to plant seed in one more field, or leave it fallow will now do the latter. An oil company trying to decide whether or not to drill a few more wells will now decide “not”. A lead/zinc miner which was considering a mine expansion, or construction of a new mine will now choose to delay that capital expenditure. Simultaneously “squeezing” supply and stimulating demand for commodities can have only one, possible long-term consequence: even higher prices than if this short-term manipulation had not taken place.

How gas price controls sparked ‘70s shortages
By -The Washington Times, 2006
Proposals to control gasoline prices and tax producers’ windfall profits were popular ideas that were tried — without much success — during the oil shocks of the 1970s and 1980s.

The era of price controls is most remembered for long lines at gas stations. The controls were put in place by the Nixon and Ford administrations in reaction to a jump in fuel prices caused by cuts in production by the newly formed international oil cartel, the Organization of Petroleum Exporting Countries.

Back then, “price controls turned a minor adjustment into a major shortage,” said Thomas Sowell, author of “Basic Economics: A Citizen’s Guide to the Economy.”

Mr. Sowell says that although the best response would have been to let prices rise, giving oil companies an incentive to produce more and consumers an incentive to conserve, “this basic level of economics is seldom understood by the public, which often demands ‘political’ solutions that turn out to make matters worse.”

The public — as it does today — wanted low prices. But the artificially depressed pump prices imposed during the oil crisis of 1973 — which stayed in place in various iterations through 1980 — brought about lines at gas stations and an artificial shortage of gas, he said.

If you thought things couldn't get any worse, think again.

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