According to some, the economy is on solid footing as evidenced by the labor markets and asset prices. This is true on the surface, but under the hood, a different picture can be seen.
Breaking down the inflation which has persisted over the last 25 years
The WSJ certainly thinks so (emphasis mine):
Surging demand from drivers in the richest countries helped power a big rally in crude this year. But many analysts say that surge is ending.
In the U.S., lower gasoline prices led consumers to drive a record three trillion miles in the past 12 months. In June, gas consumption hit an all-time high, 9.7 million barrels a day. And in July, pickup trucks, SUVs and other gas guzzlers reached a record share of auto sales.
Yet as the summer-driving season ends, low fuel prices may not be enough to entice consumers to pump in more gasoline. More broadly, economic growth isn’t strong enough in the U.S. and Europe to produce the necessary increase in jobs or new manufacturing that would spur large, long-term increases in oil demand…
….Many traders, pointing to stockpiles that are holding or even growing, are betting that a glut hasn’t eased enough to keep supporting this year’s rally.
Data last week showed U.S. stockpiles of crude and refined fuels growing to a record. Supplies of crude, gasoline and diesel are so high that even record demand hasn’t been enough to balance the market. Global gasoline storage has been filled to a near-record level all summer, almost 500 million barrels, according to Citigroup Inc.
I’d certainly agree with that, but mostly for technical reasons. Over the last three years of this oil bear market, there has been a seasonal pattern. A low early in the year, followed by a slow melt up through the spring, and a June/early summer top which gave way to declines through the fall. The following chart highlights this.
The three arrows indicate the early year bottoms in 2014-16, and the gray circles indicate the early summer tops, and potential top of this year. This is far from certain of course, but owing to the continual bearish fundamentals, the existence of bearish technicals as well does not bode well for oil bulls.
In the moderate to long term (at least 18 months to two years), I am rather bullish, as I expect global central banks to further ease monetary policy, leading to a rise in asset prices and commodities. Before this happens though, I do believe there will be one last swing lower to demoralize people. I’ve always maintained that the price would approach $20 at some stage. We shall see.
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