The first quarter of 2013 were a complete roller coaster ride in the energy space.  We saw U.S. gasoline futures de-couple from Brent crude prices on RIN speculation and natural gas prices close the quarter back over $4.00 per million BTUs for the first time in nearly 2 years.  Quietly, with the continuing saga unfolding in the Euro-zone, we’re finally seeing real movement in the Brent-WTI spread.  After threatening to break through significant support at $106.50 per barrel, Brent has turned it around and closed the first day of Q2 at $111, while WTI crude continues its march back towards $100 per barrel. Natural gas futures held above $4.00 and that portends a continued rally through Q2 as supply restrictions and falling rig counts are having their effect on price.

Brent crude put in a stunning reversal bar last week that brings into view a move back towards $115-120 by the end of the month if there is follow through this week.  With natural gas and WTI prices acting as confirmatory signals I feel very comfortable with making that call.

If the central banks are serious about stoking money velocity, which has been falling like a rock since the beginning of QEIII/IV, then scaring money out of people’s savings accounts will flow very quickly into energy commodities, driving up prices.  This will not be an overnight sensation, but rather a slow burn that will begin to push inflation expectations higher.  Energy, gold and, to a lesser extent, bonds will be the beneficiary of this.