{"id":27154,"date":"2015-07-22T23:48:15","date_gmt":"2015-07-23T06:48:15","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=27154"},"modified":"2015-07-22T23:48:15","modified_gmt":"2015-07-23T06:48:15","slug":"the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/07\/22\/the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact\/","title":{"rendered":"The Fed Aligns With Other Central Banks On Explaining Oil&#8217;s Decline and Its Economic Impact"},"content":{"rendered":"<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on Feb 25, 2015. <a href=\"http:\/\/seekingalpha.com\/article\/2947866-the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>As every other major central bank has done, the Federal Reserve has taken a crack at estimating the economic impact of the collapse in oil prices. In its semi-annual report to Congress, <a href=\"file:\/\/\/C:\/DuruStuff\/Articles\/20150224_FederalReserve_MonetaryPolicyfullreport.pdf\" target=\"_blank\">the Monetary Policy Report for February 24, 2015<\/a>, the Fed assigned supply factors as the dominant driver for declining oil prices.<\/p>\n<p>{snip}<\/p>\n<p>The Fed&#8217;s assessment is very consistent with other major central banks. {snip}<\/p>\n<p>Like other central banks, the Fed is also optimistic about the impact of lower oil prices on the economy:<\/p>\n<p>{snip}<\/p>\n<p>With oil prices (USO) well off their 5-year lows, it seems a bottoming process may now be underway for oil.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_27161\" aria-describedby=\"caption-attachment-27161\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilPrices.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilPrices.png\" alt=\"Significant buying interest has finally appeared for spot oil prices\" width=\"550\" height=\"365\" class=\"size-full wp-image-27161\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilPrices.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilPrices-300x199.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-27161\" class=\"wp-caption-text\">Significant buying interest has finally appeared for spot oil prices<\/figcaption><\/figure><br \/>\n<strong>Sources: US. Energy Information Administration, Crude Oil Prices: Brent &#8211; Europe [DCOILBRENTEU], <a href=\"https:\/\/research.stlouisfed.org\/fred2\/series\/DCOILBRENTEU\/\" target=\"_blank\">retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>, February 24, 2015. US. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) &#8211; Cushing, Oklahoma [DCOILWTICO], <a href=\"https:\/\/research.stlouisfed.org\/fred2\/series\/DCOILWTICO\/\" target=\"_blank\">retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>, February 24, 2015.<\/strong><br \/>\n<\/center><\/p>\n<p>As I noted earlier this month, earnings season brought general optimism about future oil prices. This new-found optimism seemed to support the first big rush off oil&#8217;s lows. Oil-related companies experienced a fresh rally that seemed to confirm some kind of bottom. {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_27159\" aria-describedby=\"caption-attachment-27159\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_XLE.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_XLE.png\" alt=\"The end of XLE&#039;s downward momentum and an apparent double-bottom seem to confirm some kind of bottoming process is finally underway\" width=\"550\" height=\"375\" class=\"size-full wp-image-27159\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_XLE.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_XLE-300x205.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-27159\" class=\"wp-caption-text\">The end of XLE&#8217;s downward momentum and an apparent double-bottom seem to confirm some kind of bottoming process is finally underway<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p>I purposely use the phrase &#8220;bottoming process&#8221; rather than &#8220;a bottom&#8221; because U.S. oil production has raced higher throughout the price decline. The Fed&#8217;s Monetary Policy Report includes telling charts showing how the count of operational oil drilling rigs has plunged since December, 2014 while oil production has happily continued increasing at a pace in place since 2012.<\/p>\n<p><em><strong>Click for larger image&#8230;<\/strong><\/em><br \/>\n<center><br \/>\n<figure id=\"attachment_27158\" aria-describedby=\"caption-attachment-27158\" style=\"width: 290px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilRigsVsOilExtraction.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilRigsVsOilExtraction-300x129.png\" alt=\"No let-up in oil production yet...\" width=\"300\" height=\"129\" class=\"size-medium wp-image-27158\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilRigsVsOilExtraction-300x129.png 300w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilRigsVsOilExtraction-1024x440.png 1024w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_OilRigsVsOilExtraction.png 1052w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-27158\" class=\"wp-caption-text\">No let-up in oil production yet&#8230;<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.federalreserve.gov\/monetarypolicy\/files\/20150224_mprfullreport.pdf\" target=\"_blank\">Federal Reserve Monetary Policy Report, February 24, 2015<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p>Assuming that the decline in oil prices is mainly a supply-driven dynamic, then it stands to reason that a bottom will not occur until production from the marginal producers actually falls notably. Even stabilization at current levels may not do the trick. Until then, I would not be surprised if oil retests its recent lows or even briefly breaks those lows. <\/p>\n<p>Another central bank to monitor for clues on oil&#8217;s decline and its impact is the Bank of Canada (BoC). {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_27166\" aria-describedby=\"caption-attachment-27166\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_USDCAD.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_USDCAD.png\" alt=\"The Canadian dollar has traded in a holding pattern for most of February, seemingly in wait for the next big catalyst\" width=\"550\" height=\"375\" class=\"size-full wp-image-27166\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_USDCAD.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2015\/02\/150224_USDCAD-300x205.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-27166\" class=\"wp-caption-text\">The Canadian dollar has traded in a holding pattern for most of February, seemingly in wait for the next big catalyst<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Be careful out there!<\/p>\n<p>Full disclosure: long ERY shares, long XLE call options<\/p>\n<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on Feb 25, 2015. <a href=\"http:\/\/seekingalpha.com\/article\/2947866-the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>(This is an excerpt from an article I originally published on Seeking Alpha on Feb 25, 2015. Click here to read the entire piece.) As every other major central bank has done, the Federal Reserve has taken a crack at estimating the economic impact of the collapse in oil prices. In its semi-annual report to &#8230; <a title=\"The Fed Aligns With Other Central Banks On Explaining Oil&#8217;s Decline and Its Economic Impact\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/07\/22\/the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[235,58,20,377],"tags":[56,296,1595,297,536,469],"class_list":["post-27154","post","type-post","status-publish","format-standard","hentry","category-canada","category-federal-reserve","category-forex","category-oil","tag-bank-of-england","tag-canadian-dollar","tag-federal-reserve","tag-fxc","tag-oil-2","tag-usdcad"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Fed Aligns With Other Central Banks On Explaining Oil&#039;s Decline and Its Economic Impact - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/07\/22\/the-fed-aligns-with-other-central-banks-on-explaining-oils-decline-and-its-economic-impact\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Fed Aligns With Other Central Banks On Explaining Oil&#039;s Decline and Its Economic Impact - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(This is an excerpt from an article I originally published on Seeking Alpha on Feb 25, 2015. 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Click here to read the entire piece.) As every other major central bank has done, the Federal Reserve has taken a crack at estimating the economic impact of the collapse in oil prices. In its semi-annual report to ... 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