Charts of Interest #5 (Updated 5-Nov-21)

CRUDE : adjective \ˈkrüd \ vulgarity : uncultivated simplicity : in a natural state

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I’ve touched on Crude Oil a number of times in my Charts of Interest posts and here I am again. This time, I’m giving it its very own Charts of Interest because it is such a key component of our economy.

Paying subscribers are already familiar with my trading model, which is signaling that the current price action does not favor a continued rise in the price despite - or possibly because of - prevailing sentiment relating to energy markets. Nothing has changed there.

[I had an updated Weekly chart here, but as I’m sharing part of this post with non-paying subs I have moved it to below the Paid Content line below]

Technological advancements and government carbon emission policies will eventually move us away from fossil fuel, but it will be a slow process. In the meantime, the price of crude will remain a key determinant of the rate of inflation because we live in a highly oil dependent economy, and likely will for some time despite best efforts for a cleaner greener world.

In fact, the correlation between the price of crude oil and the rate of inflation is so strong that perhaps the Fed would be better off applying its QE activities to manipulating the oil market to achieve its target 2% p.a. rate of “price stability” rather than juicing equity markets.

Crude oil and inflation

Anyhow, why have I decided to put out another Charts of Interest so soon with a particular focus on crude oil? Because I was playing around and decided to look at the spread between the first and second continuous crude oil (CL) futures contract. To see the shape of the forward curve.

At present, the forward curve is inverted. That is, the second contract is trading at a price below the first contract.

I looked back over the last few decades for when there was an inverted forward curve between the first and second contract, with a particular focus on when the level of inversion was at the same level as it is presently.

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