Hello All:
The truth about the fundamentals of the Crude Oil markets is starting to show itself. The bulls will point out to the tight supplies in the markets are the reason that Crude Oil will go to $ 100 and beyond. However, the underlying spreads in this complex are showing us a very different picture.
If you don't know what this chart is, you should learn it (November Crack Spread). For the last several weeks, with the rally in Crude oil, the products' (RBOB and Heating Oil) prices have been collapsing relatively speaking. This means that demand is being destroyed at the consumer level is being destroyed. This, of course, is not bullish the complex.
For those arguing that OPEC's production cuts will keep prices from collapsing, I will also point to the calendar spread chart above (Nov vs. Jan 2024). Supplies are getting less tight as product demand starts to come down as well (as shown by the above chart with weakening inverse). I will also argue that the reason that OPEC reduced production is that they also read the Crack Spread charts and overall demand and see that they will try to get as much money as possible before the Deflationary Death Spiral starts in earnest. I don't think that we are too far off from that.
A few days ago, I also wrote an article about what the collapsing inverse in the yield curve (10 vs 2year spread) is telling us. In just less than a week, the inverse LOST 12 BASIS POINTS as per above chart. This should worry equities/ asset bulls as a problem in the market (i.e. credit crisis, etc., who knows) will happen to unravel this rally.
The USD is also rallying in a big way recently and continues to go higher.
USD CHART IS VERY BULLISH. I see 115-120 happening in the next few months.
PLAN ACCORDINGLY. If you need any help and ideas for this plan, please feel free to reach out.
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Edgard Cabanillas
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On the date of publication, Edgard Cabanillas did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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