• last year
A commodities expert explains how a recent rise in crude oil could impact inflation and how Wall Street could react.
Transcript
00:00 So let's kick off the conversation with a look at crude oil.
00:02 It surged to 2023 highs, just happened a few days ago after both Saudi Arabia and Russia
00:08 announced extensions to their previously announced production cuts.
00:11 Was this a peak, Carly, for 2023?
00:14 Well, for the consumer's sake, I wish I could say that it was, but unfortunately I don't
00:19 believe it was.
00:21 Once we broke above 84, 85 in oil, that was a technical breakout on our charts with the
00:25 next resistance being 92.
00:28 And to be honest, I think we're, we probably have 100, 101 in our crosshairs and most of
00:33 the, there's many reasons for this.
00:36 For one, seasonally, the oil, the oil market tends to top out like second or third week
00:41 of October.
00:42 So we have some seasonal strength here in the next handful of weeks, in addition to
00:46 the momentum we've been seeing.
00:48 And there's a big disconnect, basically a big spread between where the smart money is
00:53 actually putting their money and where they're putting their mouths.
00:55 And what I mean by that is the COT report, it's issued by the government, the commodity
01:00 futures trading commission.
01:02 They tell us who's long and who's short, and they're telling us large speculators are holding
01:06 one of the smaller net long positions in oil we've seen in quite a while.
01:11 They're holding about 250,000 net long contracts.
01:14 Normally this group is more around 400, 500,000 net longs, and we've seen as high as 750,000
01:21 net longs.
01:22 So the takeaway is there's a lot of buying power.
01:26 Everybody, the sentiment readings are very bullish.
01:28 We're seeing sentiment readings, polls of insiders or industry insiders at about 70%
01:33 bullish crude oil.
01:34 So if everybody's bullish, but they haven't acted yet, we feel like there's a lot of buying
01:38 power for those people that are bullish with their mouths to put their money where their
01:42 mouths are.
01:43 And so I think we've got quite a ways to move on the upside in oil in the short run.
01:47 Carly, I know that subscribers may wonder if the rise in oil is inflationary.
01:53 Wall Street's reaction to oil on Monday would certainly have us thinking so.
01:57 But for any of our viewers that also have that question, where do you stand?
02:02 You know, I think that most of it's already baked in the cake.
02:05 If you look at previous crude oil rallies, like for example, 2007, 2008, in 2007 oil
02:11 rallied from $50 to $100.
02:14 And the CPI at that point was about, I think it was about 2.8%.
02:19 In 2008 oil made it all the way to $150 a barrel and the CPI was still under 4%.
02:26 So it's very, and with that said, I know the CPI isn't perfect and there's a lot of flaws,
02:32 but if we're going up a CPI, I think that higher oil probably won't be as inflationary
02:38 as the market's predicting.
02:39 And we have to keep in mind, even if oil goes up to 92 or 100, like I think it probably
02:45 will, natural gas is down 70% on the year.
02:49 Corn and wheat are down 30% on the year.
02:51 So some of the other commodities are picking up the slack and I think that it balances
02:55 out.
02:56 Another thing to keep in mind is gasoline prices, the national average is somewhere
03:00 around 360, 370 at the current levels in oil.
03:05 In 2008, when oil went to $150 a barrel, gas was still only about $4.
03:10 So again, I think a lot of it's already built into market pricing.
03:14 [END]
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