Quantitative Easing and Oil Price13 Jul 2020 11:01
Hi Oil, was just looking at this and came across these interesting articles and charts. All part of deciding to stick, twist or bust. Verdict for me is Stick.
Oil Price adjusted for inflation over 70 years.
https://www.macrotrends.net/1369/crude-oil-price-history-chart
The Impact Of The Federal Reserve On Oil Markets
http://energyfuse.org/the-impact-of-the-federal-reserve-on-oil-markets/
The past few months provide just some examples of central banks’ effects on oil prices. Back in early 2009, during the greatest financial crisis since the Great Depression, the central bank embarked on its quantitative easing (QE) program—or buying back bonds to bolster the economy—and zero interest rate policy. The stimulus pumped up all asset classes, including commodities, and made borrowing cheap for investors and gave them an easy one-way bet on oil. Of course, physical demand picked up as the recession eased, OPEC cut production, and a string of outages occurred in major producing countries, but three rounds of QE—along with its “Twist” to lower long-term rates—helped lift prices from the $30 range to triple digits from 2009-14.
In 2014, oil prices crashed coincidentally at the same time the U.S. Fed unwound its bond buying program—described as “taking away the punch bowl.” QE, which expanded the Fed’s balance sheet by a massive $3.5 trillion, ended in October 2014, when oil prices were in the $80-$90 range and on their way to much lower levels. While the Fed was tapering its bond purchases in the summer and fall of 2014, investors fled the oil markets, with net length—those betting on higher prices—falling from more than 356,000 lots in mid-June when prices reached their peak for the year to just under 168,000 by the beginning of November and before the seminal OPEC meeting. That massive selling among speculators accelerated the price fall.
Of course, the collapse in oil prices was driven by a broad range of factors, not least the massive supply glut driven by non-OPEC supply, a global slowdown in oil demand growth, and the decision by OPEC and Saudi Arabia in particular not to cut production in November 2014.
There’s no way of perfectly knowing whether prices were driven more then (or at any given time) by supply-demand factors or speculation, but the Fed’s ending its stimulus contributed to the whirlwind of market forces during the second half of 2014.
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