• Print
• E-Mail

Net inflows of US Dollars into Brazil totaled $5.4 billion month to date through April 11th, compared with $8 billion for all of March.

Yet by recycling their surplus Dollars into US Treasuries at negative rates of interest, these central banks are also nurturing fertile ground for speculators in commodities.

In the 1980s and early '90s, sharply higher commodity prices would have rung alarm bells in the US Treasury markets, arousing the ire of the bond vigilantes to jack up long term yields by as much as 20 basis points in a single day.

But today, the bond vigilantes have been stripped of their legendary powers, manhandled by foreign central banks which control huge sums of surplus Dollars.

Yet in one of the most fascinating evolutions in market history, the former vigilantes who terrorized central bankers from the Chicago bond pits in the 1980s, are resurfacing in the Nymex oil pits.

Nowadays, whenever Mr Bernanke and the other G7 central bankers slash their interest rates and pump up the money supply, the Nymex oil vigilantes respond by jacking up the price of black gold .

On March 5th, Saudi oil chief Ali al Naimi pointed to the growing influence of speculators who have ploughed $200 billion into crude oil and commodity markets as a hedge against the exploding global money supply and the weakening US Dollar.

The current oil price has no relation to market fundamentals, he warned. It is linked to futures, which are witnessing tremendous speculation. There are even those who buy futures and speculate that oil prices will reach more than $200 per barrel.

On March 28th, Opec chief Chakib Khelil agreed there was no link between the current oil price and supply. Stocks are high and there is an economic recession in the United States, which will impact the global economy, so demand will fall by 1.2 million barrels per day in the second quarter.

However, we have to recognize that there is no link between the price and supply. Therefore, there is no need to increase output. If we increase output the oil price would not go down.

There are numerous supply and demand factors that drive oil prices in the global marketplace. Earlier in April, Texas oilman T. Boone Pickens predicted global demand would outstrip supply by two million barrels per day in the third quarter.