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Has The Oil Rally Run Out Of Fuel?


Crude oil futures have been on a bit of a tear for the last week or so, posting only one down day in the last six days of trading, and gaining over six percent in the process. That has largely been about two things. The approach of Hurricane Idalia has been raising fears about disruptions in supply, and there was a drop in inventories here in the States last week that signals that there is already a slight imbalance in supply and demand, even before the storm’s impact. That is a bullish scenario, for sure, but it is very US-centric, and may be short-lived even there. Obviously, any impact from Idalia will be temporary, but the bullish influence of the US economy could well fade soon, too.

Yes, other international benchmark futures have also gained ground, but not by as much as WTI, the main US contract. Brent, for example, has risen less than five percent during the same period. There is nothing striking or unusual about that, the Brent WTI spread moves all the time, but it suggests that more than 25% of the gains in WTI are down to domestic influences, and those influences are far from long-term. In fact, based on data released on Wednesday morning, the outlook for US growth, and therefore US crude oil consumption is not at all encouraging.

The Importance of Core PCE

The important part of Wednesday morning’s report was what is known as core PCE, personal consumption expenditure after food and energy are stripped out. You might ask why that data…

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