Crude Oil Opens Above $38, Takes Out 1-Week Highs
With hedge fund short positions near record highs and speculators at their least bullish in almost five years, oil prices have spurted higher in the early trading as the diplomatic gloves come off in The Middle East. Despite record levels of crude inventory around the world, WTI Crude is trading above $38, up over 3% from its $37.07 close on New Year's Eve. Algos ran the stops above last week's highs ($38.32) but for now prices are not as excited as many would have expected. Brent, for now, is outperforming and trade 45c rich to WTI.
WTI tags last week's highs but is holding for now...
Some context - back to the early December inventory build levels...
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As expected, Brent is outperforming - now trading 45c above WTI...
Hedge fund shorts near record highs may get hurt...
But don't forget that while a "war premium" makes sense in the marginal production barrel sense, with inventories at their limits amid a record glut, unless this escalates even more, the physical demand/supply divergence remains vast...
And of course, if oil prices are higher then US equity prices are higher because "lower oil prices are unequivocally good for America"... oh wait.
Source: Bloomberg
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This isn't a positive sign. Most likely the feud between the oil giants will lead to more output not less as they fight over exports. Likewise, if it leads to war the US may experience inflation as well as economic stagnation as the economy feels the oncoming of a cyclical downturn made worse by the Fed's overly easy money policies of the past.
You think it will lead to war? Between which parties?
Not real war, economic war fought with dumping crude to get marketshare. That is if Iran ever gets to dump given its playing with missile technology now.
It already went down because of china PMI, for now.
Yawn, sadly oil is now filled with giant speculators which is the main reason for the run-up in the first place, the overproduction, and now the downturn. Rather than learning their lesson, banks and financial institutions have been encouraged by TBTF banking and the revocation of Glass Stegall to make the commodities market a Las Vegas casino that allows cheating. Avoid joining the speculator craze for your own good.
Better yet, write Washington to re-impose Glass Stegall and break up the TBTF banks.