Will Ben Bernanke Save Alternative Energy with Quantitative Easing 3?
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Alternative energy needs high fossil fuel prices to be competitive. Despite the hopes for it and all its promise that attracted so many billions in venture capital and public sector financial support, there is no form of clean energy that can even come close to matching the present price points of oil and, in particular, natural gas. According to a recent article in Wired magazine,"Clean Tech Meltdown" by Juliet Eilperin, the collapse in the price of natural gas has devastated the clean energy sector.
From her Wired piece, "Perhaps the biggest force working against not just Solyndra but clean energy in general is this: Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables. Technological advances in natural gas extraction from shale – including the controversial practice of hydraulic fracturing, or fracking – have opened up reserves so massive that the US has surpassed Russia as the world’s largest natural gas supplier.”
While fossil fuel prices have fallen over the last year due to a decline in demand from lower growth and greater supplies due to fracking and other new technologies, the exchange traded funds for both oil and natural gas have risen in recent market action. Down 13.57% for 2012, United States Oil (NYSEMKT: USO) rose 10.50% last week. Off 24.23% for the same period, United States Natural Gas (NYSEMKT: UNG) last week jumped by 2.14%.
Why is this? Not since JR Ewing has there been a more prominent supporter of higher prices for fossil fuels than Federal Reserve Chairman Ben Bernanke with his quantitative easing policies and programs.
Oil and natural gas prices have risen lately on the hopes that Quantitative Easing 3 will be announced by Ben Bernanke when he speaks at the Jackson Hole economic policy summit in late August. When Chairman Bernanke introduced Quantitative Easing 2 back in the summer of 2010, oil rose drastically in price. This was not due to greater demand for crude around the globe for economic growth, rather speculators fleeing the US dollar for hard assets.
Quantitative Easing 2 consisted of the Federal Reserve, through an accounting mechanism, inflating its balance sheet to underwrite the budget deficit of the United States Government. From November 2010 through June 2011, about $700 billion in US Treasurys were purchased by the Federal Reserve. Over that period, United States Oil rose from trading in the low $30s to the high $40s. United States Natural Gas did not rise due to a variety of factors, ranging from greater production due to fracking to less demand as a result of warmer weather.
With hopes for Quantitative Easing 3 mounting, speculators and traders are now driving up the price of oil and natural gas, despite the lack of fundamental economic demand. As a result, PowerShares WilderHill Clean Energy (NYSEMKT: PBW), an exchange traded fund for alternative energy, has also risen in recent trading.
Year to date, PowerShares WilderHill Clean Energy is down by 7.11%. For the last 52 weeks of market action, it is off by 46.74%. But over the last month of trading it has gained 14.25% per share. The last week has witnessed another 5.54% boost for PowerShares WilderHill Clean Energy.
Should Chairman Bernanke introduce Quantitative Easing 3 when he takes the microphone in Jackson Hole late next month, the share prices for United States Oil, United States Natural Gas and PowerShares WilderHill Clean Energy should continue surging.
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