Did quantitative easing cause gas price volatility?


Dear John: Your recent piece on gasoline prices highlights one of the unique characteristics of the US economy.

We are the largest oil and gas producer and the largest market for oil and gas. Conditions that are great for producers help us. Conditions that are great for consumers help us.

Yet the bipolar nature of our position also tends to dampen oil price swings. My sister works in Aramco’s forecasting office in Houston and has an excellent understanding of the Saudis — oil-wise. Aramco (the Saudi oil company) has divided the oil business into different periods.

One is from 1920-1972, when the “Seven Sisters” oil companies kept things stable. That ended when US production declined and we needed the Middle East oil, from 1972 to 2012.

Producers set prices, often to the detriment of consumers. Since 2012 and the rise of shale oil, there has been a marked increase in price stability, coinciding with the [increasing] balance between US production and consumption. No other commodity market has a combination producer/consumer like oil.

Some increases are good for the US economy, and some decreases are good. If the prices stay in that narrow band of fluctuation, we have a fairly stable system and overall that is good.

My sister did point out one thing: Ten years ago speculators ran rampant in the oil price markets. Their efforts did real damage, especially since the banks were using Fed free funds. Today, the banks and other speculators are a fraction of what they were in market influence.

I am curious, though, how much of that is due to the termination of quantitative easing’s free money. It would be an interesting column: what the impact was and the unintended consequences of the Fed’s QE blitz. J.B.

Dear J.B. Some day historians will look back on quantitative easing — the wanton printing of money by the Fed in response to the Great Recession — and decide the impact. The problem is that all that QE money is still in the monetary system, and the Fed seems unwilling and unable to drain it, despite assurances when all this began that this would be easy.

So we aren’t going to know the effect of QE until long after it has ended. That’s historian territory.

As for gas and oil: Maybe you can pull up charts to show me otherwise, but my on-the-ground perspective says that it is as volatile as ever. And market manipulators are as busy as ever.

But I hope you are right on those last two things.

Dear John: I have a 2011 Hyundai Sonata and find the recalls reassuring.

I have never had a problem on the road with any of my Hyundais. I actually thank Hyundai for staying on top of things.

As a former mechanic I can appreciate the importance of that. I also had a 2002 Sonata and traded it in last year for a 2017 Tuscon.

I have never had a serious problem with any of my Hyundai cars. All the recalls have been handled quickly and efficiently. I think that you get a lot of value for the buck with them too. J.B.

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