The U.S. Federal Reserve shocked the energy complex into life this week announcing it will buy $1.15 trillion in treasuries. The purchase will include $300 billion in long term bonds and the balance in mortgage debt. Their hope is the influx of cash into the economy will lower interest rates and stimulate consumer spending.
The surprise monetary policy announcement sent crude prices higher, as the US$ fell over 400 points vs the euro. Crude traders drove the front month contract to over $52. Highest price for crude since late 2008. Distillates and gas futures also improved on hopes of an improved economy creating stronger demand.
The gains this week in crude could be tempered by seasonal refinery maintenance shut downs. It also remains to be seen whether banks will significantly lower interest rates to consumers. Should the lenders continue to hoard, monetary velocity will not increase, thwarting the Fed's stimulus objective.
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