Energy traders placed their bets with Ben Bernanke on Friday that he will keep the economy moving forward even if it means another round of quantitative easing (QE2). As much as the Fed would rather stay on the sidelines and let the free market work, stubbornly high unemployment may force the Fed to expand their balance sheet, buying more bonds to drop interest rates even lower.
Energy bears had a nice run the past few months, riding the falling price of crude from a near term high of $83 down to $71. Traders are now trying to make their best guesses as to how demand will be shaping up for 2011.
Everyone is well aware how well supplied markets are for crude and its refined products. Contangos continue to widen, with refiners preferring to arbitrage prices by storing crude instead of refining into current low margin products.
Energy bulls have been relying on China to offset anemic fuel demand. The US, however, is still the leading fuel consumer and will be a drag on futures if employment in US cannot get below 9%.
The Fed can only do so much. Entrepreneurs need to have confidence and surety that invested capital will generate sufficient returns. Perhaps confidence will return after the November elections. For now the safest trade is to wait for energy futures to hit monthly resistance levels and then join the bears for profits on the short side of the trade.
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