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10/7/2011 1:12:35 PM
Some people are happy that European Central Bank President Jean-Claude Trichet is ready to go and some are going to miss him, but whatever you think about the ECB bank head he went out with a bang during his last press conference. No, he wasn't lashing out at his critics like he did at his last press conference, but he did provide the type of commodity price fireworks that he will be long remembered for. Trichet failed to cut rates in the beginning of the economic crisis and caused a limit up move in oil and surprised the market another time and crashed the market limit down. This time it is TARP Euro style mixed in with a little quantitative easing for good measure and perhaps a bit of credibility. Mr. Trichet said he secured a pledge from euro zone governments that they would set up a bailout fund to aid Greece and perhaps a PIIG to be named later. Call it TARP or CARP or call it QE with a bit of a twist but whatever you to call it, it provided the beleaguered stock and commodity markets an energetic lift.
At first the market was unsure how to take it as the euro fell and the dollar rallied. The first thought was the if the ECB was going to print more euros then that would weaken that currency and dollar denominated commodity prices as well. Yet after that the markets realized that if the ECB was going to address the real issue that has been driving markets lower and sucking confidence around the world such as the stability of European Banks because of their exposure to Greece, then that is actually bullish for the economy and bullish for demand. If the EU address the real crisis and acts to save the banks, then economic activity might not freeze and we may actually use some oil and perhaps eat something as well. You think?!
What it also proves is something loyal readers of the Energy Report already know and that is that Bailouts are Bullish! Quantitative easing, whether it is in Europe or the US, is bullish for commodities! This should be a new economic principle that should be in all economic text books. Quantitative easing and bail outs are bullish at least for a little while, until the effect of the QE and bailouts wear off.
The oil market seemed to get an added lift from strong retail sales numbers coming out of stores in the US and some spillover confidence from the ADP report and a weekly jobs number that was not as bad as expected. The market seemed to get a bit giddy, raising expectations from the looming monthly jobs report that may be the major psychological factor that will make us feel like we are slipping back into recession or not. Sure, things feel bad and as Sir Mervyn King said after a UK QE, this is the worst financial crisis the world has ever faced but if we see a number that beats expectations, perhaps we are not in a recession after all. Of course if we don't there will be more pressure on the Fed to do more. Perhaps with the EU on a QE binge then Ben can sit back and let them do the heavy lifting.
With all of this EU QE news, Mr. Bernanke is probably feeling even more justified in his QE 2 and maybe he can say, " Jean Claude, I told you so". It would not be the first time! Yet for oil and other commodities the global QE printing binge means it is safe for the bulls to come out to play!
A new OPEC?! Maybe! Reports that Venezuelan President Hugo Chavez proposed creating a new oil exporters group parallel to OPEC that would include only the "giants" of global petroleum producers. Wow! Why would Mr. Chavez want that? Perhaps no one in the old OPEC will listen to him anymore. More and more the members of the OPEC cartel are being embarrassed by Mr. Chavez and the nuts from Iran. Chavez, who loves attention, gets flustered when others ignore him and hopes that if he gets some new member or a new cartel someone will listen to his ratings and ravings. At least for a little while. In the old days OPEC would take Chavez seriously when he proposed the OPEC price band and decided to follow OPEC quota's after years of Venezuela cheating. Reports say that, "Chavez made the comments on Thursday, while hosting Russia's Deputy Prime Minister Igor Sechin and Energy Minister Sergei Smatko, saying the two countries could be part of such a super-cartel." "I had an idea, create a new organization... of petroleum giants," Chavez said during a cabinet meeting broadcast on radio and television with the Russian officials present. "We are not more than four or five" countries, he added. He said that, "Russia and Venezuela are two of the oil giants of this planet" and that such a super-cartel could co-exist with the Organization of Petroleum Exporting Counties. The approach, "would not at all mean that OPEC would suffer. OPEC is an organization with a history, with a profile, with a path, and Venezuela has played and will play a very important role," added Chavez." Now remind me why the Obama administration is dragging their heels on domestic oil and gas production again.
Margins go up and margins go down. Dow Jones reports, "The natural gas market, formerly the Wild West of commodity trading, has mellowed. So much so that CME Group ( CME ) cut collateral requirements to trade its benchmark Henry Hub futures contract for the third time this year. The exchange has slashed trading costs 57% since 2009, as a market that used to swing wildly on quick changes in supply was weighed down by massive new sources of gas from shale fields. Futures have spent most of the last three years shuffling indecisively between $3 and $5/MMBtu. Nymex November gas today rises 0.8% to $3.598/MMBtu."
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