Investing in commodities should always be a relatively stress free exercise. All one really needs to know is the past, current and predictable future value ratios of supply versus demand. Private and government supplied data makes knowing the past and current variables rather easy. The future value variable is the tricky part and is what makes markets. Throw in some outside governmental and currency risk and our stress free trading environment receives unwanted tension. Energy investors are scrambling to evaluate the future impact the governmental risk of Greece combined with a tumbling euro will have on future demand of crude and refined products.
The European Central Bank (ECB) has temporarily succeeded in calming fears of potential collapse of the European Union by stating Euro member countries will support Greece's government. The problem for the ECB will intensify when Portugal, Ireland, Spain and Italy raise their hands saying we need a bailout too. The amount of borrowing needed to sustain these countries will prevent the ECB from fighting inflation by having to hold down interest rates. The consequence will be a weaker euro.
There is no lack of currency traders currently positioned short on the euro. The oversold scenario could give the euro a bounce higher on any solid financial plan coming from the ECB. However, as crude is priced in US dollars, it will eventually need to adjust its price lower to accommodate a continuing strong US dollar. Future demand for energy will most likely need to be adjusted downward to accommodate the weakening European gross domestic product.
Energy investors will be able sleep better at night by positioning portfolios weighted on the short side on price increases to resistance levels.
No comments:
Post a Comment