The baton is in the hands of Mrs. Janet Yellen, the FED chairwoman.
The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefit’s only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.
If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs. It has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LGN itself has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas at all within a couple of years.
The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefit’s only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.
If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs. It has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LGN itself has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas at all within a couple of years.
For OPEC, they will continue to pump out 30 million barrels per day of crude oil, despite the falling crude oil price trend. OPEC is saying they aren't willing to share the full burden of the adjustment to lower prices. They want other global oil producers to share in the pain.
For gold traders oil prices will be a key factor to watch in 2015. Why? "The price of oil is an important gauge of how the economy is doing here and overseas. Greater world economic demand means higher oil prices," according to Chris Rupkey, chief financial economist at MUFG Union Bank, N.A.
"Are too-low energy prices a sign of growing deflationary pressures on a global scale?" wondered Rupkey. Treasury prices are climbing Friday amid weak inflation releases this week across a number of nations. Germany's inflation rate slid to 0.5% in November, from 0.7% in October. Japan's rate of inflation fell again last month, hitting a 0.9% reading for the core consumer price index, well short of Japan's 2% inflation target.
Barnaby Martin, the bank’s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten after years of largesse. “Our biggest worry is the end of the liquidity cycle. The FED is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said.
Looking back at historical examples, rising oil prices have occurred before every U.S. recession from the 70s onward. Higher oil prices brought inflation to too high levels which brought out the fire-brigade of Fed policy officials who pushed interest rates high enough to not just slow the economy, cool it down, they overdid it, interest rates went too high and the result was a recession. Fed policy has caused all the recessions since the 70s as they tried to bring down inflation, inflation caused in large part or at least highly correlated with higher crude oil prices. For now, the opposite may be true, with falling oil prices depressing inflation levels. Shifting to the current outlook, although we are not in the camp that believes that Fed rate hikes will be delayed. The bond market rally is running with the idea that falling crude oil prices means deflation is coming here. The Fed will not reach its 2.0% inflation goal; the Fed will not be able to raise interest rates in 2015, so buy bonds.
Looking at recent U.S. inflation numbers, consumer prices were steady in October, with a 12-month increase at 1.7%. "Core CPI trends remain well below the FED's inflation target and show no signs of accelerating," according to analysts at Briefing.com.
Don't forget the U.S. Federal Reserve has a dual mandate: maximum employment and stable prices. The Fed is struggling in its goal to hit the 2% inflation target and falling oil prices aren't likely to help. A little inflation is actually considered a good thing in an economy as it reflects economic growth and demand.
The bond market is not convinced, and U.S. Treasury yields have remained stuck at extremely low levels throughout 2014.
Let's keep on an eye in 2015. Only time will tell. OPEC's suggests oil prices will continue to head lower, and the FED's 2.0% inflation target remains elusive. The FED is watching, and so should you. Whether we want to or not, the baton for 2015 is in the hands of Mrs. Janet Yellen.
By Oderli Feriani, Baltic Trust KB – www.baltic-trust.com
For gold traders oil prices will be a key factor to watch in 2015. Why? "The price of oil is an important gauge of how the economy is doing here and overseas. Greater world economic demand means higher oil prices," according to Chris Rupkey, chief financial economist at MUFG Union Bank, N.A.
"Are too-low energy prices a sign of growing deflationary pressures on a global scale?" wondered Rupkey. Treasury prices are climbing Friday amid weak inflation releases this week across a number of nations. Germany's inflation rate slid to 0.5% in November, from 0.7% in October. Japan's rate of inflation fell again last month, hitting a 0.9% reading for the core consumer price index, well short of Japan's 2% inflation target.
Barnaby Martin, the bank’s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten after years of largesse. “Our biggest worry is the end of the liquidity cycle. The FED is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said.
Looking back at historical examples, rising oil prices have occurred before every U.S. recession from the 70s onward. Higher oil prices brought inflation to too high levels which brought out the fire-brigade of Fed policy officials who pushed interest rates high enough to not just slow the economy, cool it down, they overdid it, interest rates went too high and the result was a recession. Fed policy has caused all the recessions since the 70s as they tried to bring down inflation, inflation caused in large part or at least highly correlated with higher crude oil prices. For now, the opposite may be true, with falling oil prices depressing inflation levels. Shifting to the current outlook, although we are not in the camp that believes that Fed rate hikes will be delayed. The bond market rally is running with the idea that falling crude oil prices means deflation is coming here. The Fed will not reach its 2.0% inflation goal; the Fed will not be able to raise interest rates in 2015, so buy bonds.
Looking at recent U.S. inflation numbers, consumer prices were steady in October, with a 12-month increase at 1.7%. "Core CPI trends remain well below the FED's inflation target and show no signs of accelerating," according to analysts at Briefing.com.
Don't forget the U.S. Federal Reserve has a dual mandate: maximum employment and stable prices. The Fed is struggling in its goal to hit the 2% inflation target and falling oil prices aren't likely to help. A little inflation is actually considered a good thing in an economy as it reflects economic growth and demand.
The bond market is not convinced, and U.S. Treasury yields have remained stuck at extremely low levels throughout 2014.
Let's keep on an eye in 2015. Only time will tell. OPEC's suggests oil prices will continue to head lower, and the FED's 2.0% inflation target remains elusive. The FED is watching, and so should you. Whether we want to or not, the baton for 2015 is in the hands of Mrs. Janet Yellen.
By Oderli Feriani, Baltic Trust KB – www.baltic-trust.com
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