Crude oil year-to-date:
The crude oil rally is not lasting. The market is in disarray and today Prigozhin announced retreat from Bakhmut! As war winds down, as covid becomes a memory, crude oil, commodity prices and inflation will evaporate and we will return to our economic fundamentals of aging, shrinking populations and modern techonology. (Edit: the Wagner retreat was off and on while oil is still in disarray.)
Long-term crude oil:
Oil is overpriced, still holding premiums from war and covid. The long-term price of oil appears to be roughly $40. When markets give up huge rallies, they overshoot, so maybe the real price will be $25. But, three years ago CME rules were changed to permit WTI Crude Oil futures to go NEGATIVE, settling at -$47 a barrel.
Markets TEND to return to prior levels (reversion to extremes vs the mean). In this way, crude is destined to go below ZERO. THIS time and finally, the world will stop shovelling trillions in wealth to a few families in the Middle East-no matter what they do!
A major concern is how badly the Fed will hurt the real economy before prices give up their premiums and return to their economic levels. Perhaps the Fed's hapless run of rate hikes are over and the carnage will be no more.
Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information.
© 2023 George Rahal
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