Oil was having a rough day before Trump threatened China with fresh tariffs. It was bouncing around $60 and the lowest levels since May. But with the rout in markets following the Trump-China spat, we have crude down $2.60 to $58.91. That’s the lowest since May and the second-lowest weekly close in four years.
The combination of OPEC rapidly increasing production and another trade fight is a brutal combination for a market that’s already oversupplied. I earlier highlighted an Goldman Sachs note forecast 2 million barrels per day of excess production from now through 2026. That has to find somewhere to go and it might not until we get lower crude prices from here.
There are macro implications as oil is a big component of inflation everywhere and crude is now down 28% y/y. That’s going to flatter the monthly and y/y CPI numbers for awhile and likely will tee-up 2% headline inflation. I fear that will end up being something of a trap because oil prices will inevitably bounce back.
As for the Fed, the market is now pricing in 109 bps of easing in the year ahead, which is up from 100 bps at the start of the week.
This article was written by Adam Button at investinglive.com.