Roulston Energy Partner Stephen Maloney on How Crude Oil Moves with US Debt

July 1, 2011

With the end of QE2, no longer is there a Federal Reserve to whom prime dealers can flip US Treasuries while pocketing their fee.  And, with the Federal Government’s relentless issuance of ever more debt on hold until at least August, it’s becoming ever more difficult to push up the RISK basket for at least another month or so.

Of course, that hasn’t stopped crude oil from rebounding following IEA/SPR release of 60 million barrels of oil last week.  Problem was, much of that oil went straight to China as the summer demand swings to peak demand.

With liquidity tightening and the tension building in the runup to the “guns of August”, the one sure thing is volatility can only increase.  And increased volatility in commodities means upside pressure.

What happens when the debt spigot starts to open?  The debt ceiling will be lifted – or pierced – because come August, something has to give.  And when it does, it’s risk-on.

Secretary Geithner is saying his work is done by then and it’s time to move on.  It will be a rocky time as crude moves with US debt, without or without monetization.

Stephen Maloney is a partner at Azuolas Risk Advisors with over 30 years experience in the US and EU modeling risk and valuation in energy, FX, and other commodities. His clients include companies, hedge funds, and financial institutions actively marketing or trading physical and financial commodities and derivatives. He will be participating in our Energy Roundtable on July 14th in New York City with former Shell President John Hofmeister.

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