Crude oil is back below $50 and production is up. Hedge funds are reducing positions. Is this the end of an inflationary jump?
Crude Weekly Chart
Oil’s Stint Above $50 Ends
Bloomberg reports Oil’s Stint Above $50 Ends.
I do not know where Bloomberg got that caption from. Crude is not at its lowest price since December 2003.
I show crude at $26.05 in January of 2016.
Hedge Funds Pare Positions as Stockpiles Soar
It doesn’t help that U.S. crude stockpiles remain above their five-year average by more than 70 million barrels at a time when refineries are starting to shut for maintenance. Meanwhile, the top American shale plays, led by the Permian and Eagle Ford basins in Texas, are set to produce a record amount of crude this month.
Hedge funds reduced their WTI net-long position — the difference between bets on a price increase and wagers on a drop — 1 percent to 249,323 futures and options in the week ended Oct. 3, U.S. Commodity Futures Trading Commission data show.
As for Brent, the net-long position on the global benchmark declined 0.9 percent to 504,263 contracts, after reaching an all-time high the previous week, according to data from ICE Futures Europe.
“Oil’s had a heck of a run for the month of September,” Thummel said. “The continued concerns in the market that keeps the shorts active: Is OPEC compliance waning? Will their compliance start to be less? Will they start to cheat more?”
Crude Monthly Chart
CPI Energy
Year-over-year the CPI energy index is up nearly 12%. Although it’s October, the latest CPI is for August.
End of Inflationary Jump?
I don’t know if this is the end of the move over $50 or not, but fundamentals are poor just as hedge funds plowed into crude futures.
A move back towards $40 seems likely.
If so, inflation pressures may be peaking to the consternation of the Fed.
Mike “Mish” Shedlock
YES! and gold is going to $800. The Fed’s inflation target is really a reflation target. Might be crashing oil prices is the secret factor behind the pale employment numbers, we all know that the effect of unemployed oil field workers is far more deleterious to the economy than higher consumer prices at the pump. Houston gets the double whammy. Low gas prices, low gold prices, there’s only so much good news this economy can handle. We’re going down.
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“If so, inflation pressures may be peaking to the consternation of the Fed.”
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Will housing (finally) be second shoe to drop?
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Lenders trying to get out in front … how long will this can kick last?
…
WASHINGTON, DC – Facing constrained mortgage demand and a negative profit margin outlook, more lenders say they have eased rather than tightened home mortgage credit standards, according to Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey®. Across all loan types – GSE Eligible, Non-GSE Eligible, and Government – the net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016.
http://www.fanniemae.com/portal/media/corporate-news/2017/mortgage-lender-sentiment-survey-q3-2017-6606.html
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NYTimes reported that anyone who has Goldman Sachs software can manipulate the markets. If the Saudis continue to collaborate with Putin then an oil price of $25/bbl is likely. Low oil prices would do wonders for the US voter. Saudi and Russian welfare dependents can eat less.
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Compare the current oil price to the peaks of $40 in 1980 and $149 in 2008, and you will see that oil has been in a long term bear market, adjusted for inflation.
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Not looking good for electric cars.
https://blog.caranddriver.com/evs-are-cheap-to-run-but-expensive-to-own-thanks-to-abysmal-resale-values/
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Bloomberg’s track record on energy products is worse than Dennis Gartman’s. Wouldn’t even bother reading it — its not even useful as a contra-indicator.
When Mike Bloomberg decided he wanted to be a politician, his entire organization was restructured to serve HIS ambitions and needs. That is what this story is really about
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only reason oil is this high is that central banks are printing trillions and buyin oil futures contracts to massively prop up prices,if based solely on demand oil would be under $10 a barrel ,gas would be under a dolla
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No inflationary jump. They were using the hurricanes as an excuse to raise prices short term. That’s over so prices will drift back down. Hard to raise prices when they are running out of storage room for excess crude.
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is this a lack of inflation problem or a weak economy problem?
as far as inflation, from my vantage point the worst inflation seems food related and its very noticeable in my weekly spending. maybe my diet isn’t typical but fish make up my core protein and my food budget keeps going up
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What doesn’t anyone ever talk about the massive inflation in residential rents and house prices? So many parts of the country are up 50%+ in home prices and 50%+ in rents the last say 4-5 years. And rent or house payment is pretty much everyone’s largest monthly budget item. Electronics, cars, other consumer items may not be inflating, but you only buy a laptop every few years and a car even less often. Rent is EVERY month.
Health insurance premiums are also in many cases double what they were 3-4 years ago.
I have actually seen food stay steady or fall in price. There is so much competition with grocery stores where I live. Even Whole Foods has reduced prices substantially post Amazon acquisition.
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I always hope the price is low when the dividends are being reinvested and high if I need to sell. Wake me when somebody finds a practical, deliverable substitute for billions of gallons per day.
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Prices abate because, production remains “good” but, the refinery demand is low due to the switch over to winter fuel… less refinery demand.
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