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