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Trading An Illogical Oil Market


Interpreting economic data, “the figures” as those of us in the interbank forex market used to call them, used to be simple. If a number relevant to the dollar beat expectations, say better than expected GDP growth, or lower than expected inflation, you bought. If it was worse than expected, you sold. Simple. Now, though, it seems that we are in a kind of post-ironic world, where everyone is so determined to prove that they are “thinking outside the box” that markets frequently move in a completely illogical way after releases.

Take this week, for example. There have been three major news and data releases this week: the FOMC interest rate decision, GDP, and Core CPE, the Fed’s favorite measure of underlying inflation. The Fed hiked rates, inverting the yield curve even further, the American economy shrank for the second consecutive quarter, and inflation rose by more than expected. Put all that together, and to somebody as old as me, who remembers the boogeyman of the 1970s and 80s, it smells a lot like the dreaded stagflation.

So, how did indicators of economic well-being such as the stock market and oil prices react? Here are the 5-day charts for the S&P 500 and WTI futures (CL)…

Just to reiterate, the Fed is hiking rates into a shrinking economy, but failing so far to get inflation under control… and both stocks and oil gained on the week. If you have been paying attention, you will have heard…

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  • Larry on July 29 2022 said:
    The demand destruction caused by a recession will not surpass the tight supply. They have been releasing millions of barrels every week. We are still experiencing draws. The recent 20 million barrel release announcement from the spr is an indication that they can no longer afford massive releases. It is a strategic nightmare with China breathing down Taiwans neck. The market is illogical, oil should be at least 150.
  • michael mecham on August 06 2022 said:
    I believe crude will continue to fall due to the reserves needing replenished then may see historical prices. Noone even brings up how conveniently cheap crude was when Trump announced he would keep the oil industry busy by filling the reserves at laughable prices. Has anyone considered the insane amount of money that was made when Biden conveniently saves the day by depleting the reserves when he did? I think its time for a refill. Too many coincidences to say I was buying the dip and selling the rip. They filled up at the very bottom and depleted at the top at A global level. Epic!

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