Brewing Concerns: Fed’s Coffee Break from Rate Hikes and OPEC’s Oil Price Struggles
It’s about time that the Fed waits in line at Starbucks and orders an American Cherry Pie Frappucino and takes a loooong coffee break from rate hikes. They seem to have forgotten that there is a cumulative impact AND a lag effect related to their hawkish actions that still have yet to play out while everything else stays in neutral. The impact on unemployment takes a long time. Even if business is slowing, since it’s a tight labor market, companies are reluctant to release any employees, fearing difficulty in hiring them back if need be. So instead, they are cutting back on hours. Finally, we are seeing some of the Fed actions filtering through. Last week, applications for US unemployment benefits jumped to the highest level since October 2021, suggesting mounting layoff announcements may be starting to translate into real job cuts. The increase in applications was the largest since July 2021. Regarding the Fed’s war on inflation, while it’s true that easy money was a major contributor, the other bad medicine was the supply chain disruption created by the pandemic. The latter variable is now being mitigated, and that temporary inflation fuel is now non-existent.
Anyway, if OPEC+ is still wondering why they can’t make oil prices go up, despite all of the licking of lollipops, perhaps they should crack open their macroeconomic textbooks rather than trying to make friends at the 19th hole. True, OPEC+ now believes that they can cut output, without risking another shale revolution. However following Saudi Arabia’s commitment to output cuts, their anticipated joy of surging crude oil prices (and affiliated ouching) lasted about as long as the lobsters do at Mass Appreciation Day. Once again, the haunting fear of recession and mixed economic news was a gut punch to oil prices, and OPEC+ was Glass Joe and back on the canvas. The vaunted research firm, Energy Aspects, lowered its oil price forecast by $15 a barrel for the remainder of the year To add insult to injury, we saw an unexpected increase in clean products inventories. WTI closed the week at $70.17, down from last Friday’s $71.74 and continued to tumble on Monday morning. The Tank Tiger is spinning around in the contango dance, and we do have more storage to show you. Give us a call.
Tomorrow The Tank Tiger will join hundreds of industry professionals in beautiful Hyannis, MA. We’re looking forward to seeing you there. It’s not too late to sign up. Get on a bus, train or plane and we’ll see you there tomorrow. All in all, it’s just another brick in The Wall.
