Brent Crude prices reversed a two-day slide that began last Friday after coming within sight of $120 per barrel on short-term inflation expectations.  In doing so the spread between it and West Texas Intermediate Crude widened back above $20 per barrel.  The spread had narrowed considerably on the re-opening of the Seaway pipeline.  But traders over-estimated the operational efficiency of the recently-repaired pipeline and the spread dropped to as low at $17.

Brent moved higher with a stronger Euro today as it is wont to do.  Gold refused to come to the party and lazed around after the drive-by shooting it took yesterday.  So, inflation signals were mixed.  The short end of the TIPS curve rose on a strong 3 year Treasury auction and the S&P ground incrementally higher.  Everything is looking exactly like the Fed wants it.  Stocks up, bond yields low, gold flat and copper range bound.

The only real problem is Brent Crude.  It refuses to back down to the G-7′s jawboning; looking like it wants to challenge last year’s high of $125 per barrel, which it will if the Fed continue its expansion of the monetary base.  High oil prices will snuff out the recovery-on-paper that exists in the U.S. and remind everyone just how trapped the Fed is given its Keynesian view of the economic world.

Brent prices in Euros, however, are still very low compared to last year and will serve to offset the lack of support from the ECB who is allowing its balance sheet to contract to force the periphery into another round of defaults.