If two birds were an entire species & the stone was a meteor: DUMB excited I actually found something I could get long on & not have to worry about sitting on it. I'm one of (maybe a handful?) of people that will actually describe how/why oil has the potential to see $100 (more-or-less, but potentially more) a barrel. This one is interesting, so it deserves a lecture. To start, the price of oil is less of a market supply-and-demand type concept. Humor me.
Unless it's analysts & "professional" investors who either A) don't wana "spook the market" or B) are just, completely clueless as to just how influential the story behind oil is in the type of market we're in; not in general, but currently. I'll start off easy, that way retail / "professional" investors (you oil traders out there too) don't get too ahead of yourselves. In 2008, when crude hit $144 a barrel, it wasn't because there was UNDER-supply of oil that created OVER(whelming)-demand. Right? The majority of oil-price-predictions I've heard sound plenty alike. The majority summed up: "US supply of oil is at record highs", "dollar strength will cut demand for oil", "Saudi's will increase production to make up for Iran's decreasing production", all that. If you agree - feel free to enlighten me 1) why oil is @ a 4 year high (there's more-than-enough supply, right?) or 2) If the dollar really IS that strong, why did oil make a bottom in 2016 - the same time the dollar index topped out? I mean, the economy is booming, the fed is tightening, & we have a fed funds rate 5x fucking higher than we did in 2016 - what does it take for a FX USD bull to put some bread on the table? I haven't even begun shoving shit in anyones face / hopes / dreams of a bull market yet, so hear me out.
It's ironic to me that the dollar started it's solid ass run going into 2015, because if I remember it right, I was a senior in class on twitter reading about how the government was shutting down (first time I ever heard of that). Come to find out - the U.S almost defaulted on its debt (& then the dollar surges? lol). Nonetheless, the dollar surge leads to oil plummeting ($108 -> $44). Not long after (Feb, 2015), US imposes sanctions on Russia (since Russia = one of largest oil exporters, the demand for Russian exports was supplied by "stable" U.S growth instead). Something to note - this is the same time GDP on an annual basis breached 5% for two quarters in a row (In case you ever wonder why Trump begs for lower oil prices, even though we have tHe HiGheSt sUpPLy oF oiL) <- it's because there's no demand for our fucking greenback. But check me out because markets work how markets will work, we saw that in 2014-2016 when our dollar surged without interest rates having to flinch. Rather than factor (say, the strength of) the dollar into oil, lets factor the supply-&-demand of oil to see how that potentially impacts the USD / inflation / interest rates. If you didn't know about the U.S becoming the #1 exporter of oil in 2018, you do now. But if you think that's impressive, you'd probably be mindblown @ the fact that U.S production of mining crude oil is officially the highest it's been since the 70's!!! Not the 1975 stagflation era, or the 1973 oil embargo, just, the couple years right before it!! Just thinking about it - it's, really actually something that makes me uncomfortable to think about; oil strength led by dollar weakness would be normal in a downturn, really. Dollar weakness led by oil strength, I mean. It's surreal to think about. But I'll explain why (I feel like I'm about to shit on my own life)
At this point, I'm confident that 0 people I've heard comment about the fed hiking interest rates (despite the lack of inflation data to suffice) actually understand even slightly, the concept of credit, especially in the form of interest rates. I'll make this quick, but summed up, this is the avg belief:
1) "Inflation = higher prices"
2) "Higher interest rates = stronger currency = lower prices (inflation) + higher unemployment"
3) "Lower interest rates = weaker currency = higher prices (inflation) + low unemployment".
This is common sense:
1) You go into a car dealership, you pay $25,000 cash for a brand new 2018 Prius. No debt = no interest payment.
2) You open up a business w/ help from a business loan. You increase the price of your goods because A) You think that'll help you compete with walmart B) Interest rates are rising - you need to pay more $ on your debt
3) Obama inherited a recession, increased taxes, cut spending, almost defaulted on Bush's debt because he didn't agree w/ the spending plan, had 3 quarters of 4+% GDP growth, and year after year - decreased the amount of debt the U.S owed globally.
4) Trump inherited a _____ economy, turned it into a bull market, cut taxes, splurged on the deficit, we're now in a bear market, & he blames the federal reserve because he has to pay money on his debt. But meanwhile, since unemployment is LOWEST ITS BEEN SINCE 1969, THE FEDERAL RESERVE HAS 0 REASON TO SLOW DOWN ON HIKING RATES, especially if the deficit grows by 17% within 3 quarters of his 2nd year.
This is getting too long, I'm done. There's more but, fuck it. I got annoyed just thinking about all this. But here's a graph that shows US crude production since 1969. If this doesn't rhyme with stagflation I mean, it fucking rhymes with stagflation idk what else to say.
fred.stlouisfed.org
