Lazy Oil And Stubborn Inflation

Oil prices are rising, but volatility is not.

Inputs that matter: Bob McNally, former White House advisor, believes $100 oil is "entirely real."

The chief investment officer of Andersen Capital Management, Peter Andersen, warns, "And as oil prices rise, certainly, you know, there is going to be an interpretation of that as inflation," possibly delaying the Fed rate decrease for June.
West Texas Intermediate, the benchmark U.S. crude, closed in on $87 a barrel on Friday (+21.3% ytd).
Brent, the global benchmark, settled above $91 a barrel (+18.3% ytd).

The opportunity: Moody's chief economist Mark Zandi told CNN, "Nothing does more damage to the economy more quickly than higher oil prices."

According to Moody's, gas prices are a crucial variable in the November election.
MarketWatch reports, "Oil appears to play a major role in this week's rise of the benchmark 10-year Treasury yield."
"Much of that move is due to rising oil prices, a factor to which the breakevens are particularly responsive," noted John Velis, an Americas macro strategist for BNY Mellon.

Zoom in: Everything from sugar and cocoa to inflation and oil keeps increasing.

The Street believes the U.S. will see $5 per gallon of gasoline by summer.
The Motley Fool warns that we are facing the most significant drop in M2, the amount of spending money in circulation, since the Great Depression.
"We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent," explains Federal Reserve Bank Chair Jerome Powell.

Between the lines: There is less fuel available for export.

Reuters reports, "Russia's government has ordered companies to reduce oil output in the second quarter" and recently implemented a six-month ban on gasoline and diesel exports.
"The price gains reflect supply risks from attacks on Russian oil infrastructure and global shipping, as well as ongoing output cuts by the Organization of the Petroleum Exporting Countries and allies (OPEC+)."
MarketWatch declares, "Global benchmark crude oil futures headed higher on Tuesday, finding support as hopes for a cease-fire in Gaza faded after Israeli Prime Minister Benjamin Netanyahu reiterated a pledge to invade the city of Rafah."

Follow the money: With oil prices rising, market analyst John Kemp reports that traders have been buying oil at the fastest rate since 2020.

Bank of America increased its 2024 Brent and WTI price outlook this month to $86 and $81 per barrel, respectively, and said both were likely to peak around $95 a barrel this summer.
"Analysts at the bank say that if oil prices rise above $100, central banks will not be able to cut rates due to the flow-through effect of higher inflation."

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Todd Moses
April 10, 2024