Crude oil passed 2023 highs as Wall Street returned from the Labor Day weekend following surprise production cuts from both Saudi Arabia and Russia.
The move higher comes just in time for a seasonally strong period for crude, with oil tending to peak in the first weeks of October, Action Alerts PLUS team member and commodities and futures broker Carley Garner said.
So what does it all mean in the Federal Reserve's ongoing fight against inflation?
"You know, I think that most of it's already baked in the cake. If you look at previous crude oil rallies, like for example, 2007, 2008, in 2007, oil rallied from $50 to $100, and the CPI at that point was about-- I think it was about 2.8%. In 2008, oil made it all the way to $150 a barrel, and the CPI was still under 4%," Garner said.
While Wall Street waits for Wednesday's read of consumer price inflation, CPI, catch Garner's breakdown of what current oil prices mean for your price at the pump, the equities market and much more in the video above.
Related: Stocks stagger into weekend on US-China tech worries, new inflation bets
FULL VIDEO TRANSCRIPT BELOW:
J.D. DURKIN: So let's kick off the conversation with a look at crude oil. It surged to 2023 highs. It just happened a few days ago after both Saudi Arabia and Russia announced extensions to their previously announced production cuts. Was this a peak, Carley, for 2023?
CARLEY GARNER: Well, for the consumers sake, I wish I could say that it was, but unfortunately, I don't believe it was. Once we broke above 84, 85 in oil, that was a technical breakout on our charts. With the next resistance being 92, and to be honest, I think we probably have 100, 101 in our crosshairs. And most of the-- there's many reasons for this. For one, seasonally, the oil market tends to top out like second or third week of October, so we have some seasonal strength there the next handful of weeks in addition to the momentum we've been seeing.
And there's a big disconnect, basically a big spread between where the smart money is actually putting their money and where they're putting their mouths. And what I mean by that is the COT report it's issued by the government the Commodity Futures Training Commission. They tell us who's long and who's short, and they're telling US large speculators are holding one of the smaller net long positions in oil we've seen in quite a while. They're holding about 250,000 net long contracts.
Normally, this group is more around 400, 500,000 net longs, and we've seen as high as 750,000 net long. So the takeaway is, there's a lot of buying power. Everybody, the sentiment readings are very bullish. We're seeing sentiment readings, polls of insiders or industry insiders at about 70% bullish crude oil. So if everybody's bullish, but they haven't acted yet, we feel like there's a lot of buying power for those people that are bullish with their mouths, to put their money where their mouths are.
And so, I think we've got quite a ways to move on the upside in oil in the short run.
J.D. DURKIN: Carley, I know that subscribers may wonder if the rise in oil is inflationary. Wall Street's reaction to oil on Monday would certainly have us thinking so. But for any of our viewers that also have that question, where do you stand?
CARLEY GARNER: You know, I think that most of it's already baked in the cake. If you look at previous crude oil rallies, like for example, 2007, 2008, in 2007, oil rallied from $50 to $100, and the CPI at that point was about-- I think it was about 2.8%. In 2008, oil made it all the way to $150 a barrel, and the CPI was still under 4%. So it's very poss-- and with that said, I know the CPI isn't perfect and there's a lot of flaws.
But if we're going off of CPI, I think that higher oil probably won't be as inflationary as the market's predicting. And we have to keep in mind, even if oil goes up to 92 or 100, like I think it probably will, natural gas is down 70% on the year, corn and wheat are down 30% on the year. So some of the other commodities are picking up the slack and I think that it balances out. Another thing to keep in mind is gasoline prices. The national average is somewhere around 360, 370 at current levels in oil.
In 2008, when oil went to $150 a barrel, gas was still only about $4. So again, I think a lot of it's already built into market pricing.
