This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Will Oil Prices Pop or Drop Post QE2?

NEW YORK ( TheStreet) -- The end of the government's second round of quantitative easing could have a significant impact on the value of the dollar and directly impact oil prices.

Schork Group Analyst Hamza Khan, who predicts longer-term weakness in oil following the end of QE2, draws a clear line between price weakness and lower prices.

"Wall Street bulls have their buying caps on and (as you can see from today's higher prices despite a catastrophic consumer confidence number) seem willing to ignore fundamentals to push prices higher," Khan said in an email on May 31.

July light sweet crude prices rose $2.11 to settle at $102.70 that day, despite a more than 5-point fall in the Conference Board's consumer confidence index to 60.8 in May from a revised reading of 66 in April. The consensus forecast was for the reading to increase further to 66.3.

Khan says investors who watched the oil price rally to almost $150 in 2008 while standing on the sidelines don't want to miss another chance at profiting from oil.

"Buying begets buying, and the end of QE2 may cause the bulls to stumble, but likely won't make them stop," said Khan.

The Federal Reserve's purchase of $600 billion in U.S. Treasuries, known as quantitative easing 2, or QE2, was designed to ensure a healthy supply of dollars on the market and helped to boost asset prices. The end of this program is expected to dry up the dollars and make way for interest rate increases, injecting strength into the currency. With oil being a dollar-denominated commodity, a stronger U.S. currency against the Japanese yen and euro, for instance, would make oil more expensive for those countries to purchase, hurting demand.

The program ends on June 30.

Khan, however, doesn't foresee the end of QE2 having an immediate, tangible effect on oil.

Many market watchers believe that QE2 has already been priced into oil, but are anticipating a rise in prices if the Federal Reserve uses language indicative of a possible QE3.

"I think the loose monetary policy will be with us for some time," says Tradition Energy's senior director of market research, Addison Armstrong, referencing the recent, poor economic data. "I think the Fed's hands are effectively tied."

On Friday, the Bureau of Labor Statistics said nonfarm payrolls increased by 54,000 on a seasonally adjusted basis in May, much lower than analysts had expected.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
BHI $60.95 -1.90%
HES $71.37 -2.90%
HAL $42.38 -1.30%
MRO $26.78 -2.00%
OXY $74.77 -2.60%


DOW 17,856.78 -278.94 -1.54%
S&P 500 2,071.26 -29.78 -1.42%
NASDAQ 4,927.37 -55.4390 -1.11%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs