Well, ahead of this week’s inflation data, we found it interesting that crude oil and the entire energy commodity complex are rallying.
Let’s take a look at the chart of crude oil futures. 👇
After several months of treading water in the high sixties and low seventies, prices appear to have stabilized and are now approaching a two-month high. Additionally, the oil services ETF $OIH, is approaching its year-to-date highs. Traders say this industry is the most levered to the price of oil, so its recent strength could signal that market participants are positioning for oil prices to go higher. 🛢️
If crude oil continues to rally, it could indicate that the market believes economic demand could be better than initially anticipated. With a recession around the corner, many had expected a continued decline in crude oil prices. But global production cuts and an improving economic outlook may mean the equilibrium price could be higher than current levels. 🤔
The recent rally won’t impact this week’s inflation data. However, if energy prices heat up again in the coming months, it will be a significant headwind for bringing headline inflation down to the Fed’s 2% long-term target. As a result, the market will be watching crude oil (and all energy commodities) closely as a “real-time” inflation gauge. 🌡️
As always, we’ll have to wait and see how things play out. But energy futures and stocks are definitely capturing traders’ attention after their recent strength. 👀