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What The ECB Actions Mean For Oil

In case it escaped your attention, Mario Draghi, the ECB President, announced a package of measures yesterday designed to stimulate the lagging Euro zone economies. To many energy investors who focus on WTI and maybe natural gas prices and the stocks of companies involved in those industries that may seem to be of marginal importance at best, or irrelevant at worst. My dealing room experience, however, taught me that all financial markets are inextricably linked. Developing an informed opinion as to the prospects for any one market requires an understanding of others. The ECB announcements, therefore, will have a profound effect on the energy markets in the future.

The package Draghi announced yesterday was, particularly for the ECB, quite aggressive. They will be increasing the size their bond buying program, their version of QE, by one third, from 60 Billion Euros a month to 80 Billion and that program is now slated to continue for longer. They cut their main interest rate from 0.5% to 0% and the bank deposit rate from -0.3% to -0.4%, as well as announcing an innovative policy that will actually pay banks to borrow money and lend it out. All in all it amounts to some serious monetary stimulus.

Still, if you believe the immediate reaction of markets yesterday, it wasn’t enough. The initial reaction, a drop in the Euro and a surge in European stocks, was what one would have expected, but as Draghi spoke in the ensuing press conference and said that he didn’t…

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