• 4 minutes Your idea of oil/gas prices next ten years
  • 7 minutes WTI Heading for $60
  • 13 minutes Could EVs Become Cheaper than ICE Cars by 2023?
  • 4 mins Pros and Cons of Coal
  • 2 days Pence says South China Sea Doesn't Belong To Any One Nation
  • 2 days Anyone holding Nvidia stock?
  • 4 hours Is California becoming a National Security Risk to the U.S.?
  • 1 day Why does US never need to have an oil production cut?
  • 2 hours US continues imports of Russian gas which it insists Europe should stop buying
  • 2 days Germany Discusses Lifting Ban on Deporting Syrians
  • 6 mins Warren Buffett
  • 6 hours Regular Gas dropped to $2.21 per gallon today
  • 19 hours Trump administration slaps sanctions on Saudis over Khashoggi's death
  • 2 days I Believe I Can Fly: Proposed U.S. Space Force Budget Could Be Less Than $5 Billion
  • 1 day Commission: U.S. Could Lose Wars With Russia, China
  • 2 days China Claims To Have Successfully Developed a Quantum Radar That Can Detect 'Invisible' Fighter Jets

Explaining The Big Drop In Oil Prices

Oil

As I’m sure you are aware, over the last week and a half, U.S. stocks have taken a massive hit. The reason we are told, is that the widely followed and frequently indicative forex and Treasury markets are both suggesting that inflation fears are growing. It is understandable if all the potential ramifications of that elude you as inflation was last a real problem back when Reagan was President, but most know that it involves higher prices of goods and commodities. So, logically speaking, inflation fears should be pushing oil higher, right? Wrong.

(Click to enlarge)

As you can see from the above chart for WTI futures (CL), the U.S. benchmark crude contract has instead dropped around ten percent from the highs, following the stock market lower. If you think about it, though, that shouldn’t be a surprise. Stocks, like commodities should also logically trade higher on inflation expectations, but they are collapsing too, so something else must be going on. In fact, it is not one thing, but several things that make this seemingly counterintuitive move perfectly understandable.

First and foremost, what the stock market is reacting to is not the prospect of inflation per se; it is the prospect of the response to the prospect of inflation. Part of the reason that inflation has not really been an issue in the U.S. since the days of big hair and disco is that the Federal Reserve Bank has become a lot better at seeing the warning signs of rising…

To read the full article

Please sign up and become a premium OilPrice.com member to gain access to read the full article.

RegisterLogin

Trending Discussions




Oilprice - The No. 1 Source for Oil & Energy News
-->