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October 7, 2017 | Oil Back Below $50: End of Inflationary Jump?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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 20003. I show crude at $2605 in January of 2016.

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

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October 7th, 2017

Posted In: Mish Talk

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