Diving Crude Oil Prices Will Dampen Inflation
$USO, $OIL, $UGA
Crude Oil prices dove 7% Tuesday, and we can expect a reaction from OPEC when they meet on 6 December
Shayne and I see more Southside risk for Crude Oil prices, at least until the OPEC meeting where fundamentals supply/demand issues will be on Top of the discussion list.
Daily price moves for Crude Oil like what we saw Tuesday are not common, there are economic consequences from moves like that in Crude Oil markets.
Investors should keep in mind that lower Crude Oil prices will reduce headline and core inflation rates in the United States.
That may matter in the US as now is the time of year when a lot of companies are making their wage and price decisions and there could be some 2nd-round effects from this action.
The move may also weaken USD. A lower Crude Oil price, led by energy market fundamentals, weakens the demand for USDs with which to buy Crude Oil.
The increase of US deficits has increased the need for USD buyers, but if the Crude Oil price fall persists, that might tilt the balance of foreign exchange markets.
The global economy still strong and some consumers giving upside surprises to the demand for Crude Oil, the risk is that the price rebounds some.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in October on a seasonally adjusted basis after rising 0.1% in September, the US Bureau of Labor Statistics reported Wednesday. Over the last 12 months, the all items index rose 2.5% before seasonal adjustment.
These inflation rates do not reflect the most recent Crude Oil price moves due South into Bear market territory
A reading of 2.5% inflation confirms the Fed’s current policy path.