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Chart of the Week: Lower Oil Prices Ahead?

With rising inflation fears, many Wall Street pros expect still-higher oil prices. But what if this chart proves them to be wrong?
Chart of the Week: Lower Oil Prices Ahead?
Photo by Zbynek Burival / Unsplash

Whenever a particular stock market topic starts to dominate the news, I automatically think "What could interrupt or derail that trend?"

For instance, inflation headlines are all over the news this morning. The US consumer price index (CPI) rose 7% last month - its highest level in 39 years.

Needless to say, inflation is a big part of investors' fear psychosis right now. It's why the stock market has been selling off lately, and why lots of previously strong stocks, are suddenly very weak.

So if the main stock market story is "inflation is bad" - is there anything that might change that presumption in coming days?

The idea is... if that presumption changes even a little, it could set off a tradeable rally in the stock market.

Here's one possibility, when I look at the price of crude oil.

Of course, I possess no crystal ball on these matters. Maybe oil just keeps surging higher and higher. In fact, I'm on record in my YouTube videos as expecting oil prices to hit $100 a barrel, based on low investment in the oil sector, an eventual lessening of the pandemic and the resurgence of a "back to normal" economy.

Judging by all the rising inflation fears, many other Wall Street pros expect still-higher oil prices as well.

But what if we're all wrong?

Standard & Poors issued a report yesterday that supports the idea of lower oil prices in coming months.

  • The US Energy Information Agency expects rising oil supplies as more US drillers put omicron/pandemic/supply-chain delays behind them.
  • OPEC is said to have plenty of spare pumping capacity.
  • The Federal Reserve keeps saying inflation pressures will be "transitory"...there's always the chance that their PhD economists are right.

It begs the question - what if the current surge in oil prices is actually the "last hurrah" for this trend, at least until perhaps next summer when gasoline demand tends to increase as many of us take off for our travel vacations?

If oil prices were to unexpectedly moderate in a few weeks' time...it would force many traders to likewise moderate their "inflation is bad" story, and perhaps be more interested in buying stocks again.

One thing I've learned over the years...

Markets - and individual stocks - that trend strongly higher, have a way of getting us very excited about even-higher prices. At some point though, the market gods pull the rug out from underneath us.

So if we can imagine different scenarios, and anticipate different outcomes, then we're taking a big step towards becoming better, more successful investors and traders.

Best of goodBUYs,

Jeff Yastine