Crude Oil Approaches Two-Month Highs

Last month we posed the question of whether investors were sleeping on commodities. And then, a week later, we talked about the rally in natural gas. 

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. 👀

Are Investors Sleeping On Commodities?

We know pulling people’s attention away from stocks is tough, especially when they’re rallying. But as we close out the week, we wanted to point out that many of this week’s top-performing assets were commodities.

The chart below from Finviz shows that nine of the top ten performers this week were commodity futures, with Natural Gas topping the list at +16.19%. 🤩

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Crude Tops 90 As Inflation Ticks Up

Before we get into U.S. data, we need to discuss the European Central Bank’s (ECB) rate decision. The central bank surprised markets by raising rates another 25 bps to 4.00%, marking its tenth consecutive hike. 🔺

Unlike the U.S., Europe has not made as much progress in bringing down inflation, and its economy has not been as resilient. The region started raising rates later than the U.S. and experienced more direct impacts of the war in Ukraine, so it’s understandable that they’d be a bit behind the curve in making progress.

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Copper Crumbles Amid Recession Fears

If you’ve been consuming financial market-related content for a while, you’ve probably heard the phrase “Dr. Copper” at some point. Well, the doctor was in today, so let’s hear what he had to say. 👂

For those of you confused, market participants often refer to copper futures as “Dr. Copper.” The reasoning is that copper is an industrial metal critical for most aspects of global economic growth. As a result, investors and traders will often use copper futures as a liquid market to express their views of the economy. And for those that don’t trade it directly, they look at it as a barometer for the overall market’s economic outlook. 🧭

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