Pro Perspectives 2/5/21

February 5, 2021

Yesterday we talked about China’s buying spree in commodities, repeating their post Global Financial Crisis strategy of building inventory in the world’s most important commodities, at cheap prices.

With that, oil prices have the perfect storm.  The new administration has vowed to kill the U.S. fossil fuels industry.  The global climate actioners have coordinated to choke off capital to new oil exploration projects (globally).  And China is buying oil around the globe at the fastest pace on record. 

This is a recipe for lower supply.  And demand is only growing, as the economic recovery picks up, despite the idea that we will all drive electic cars one day (it won’t be anytime soon).  Lower supply and higher demand means oil prices could move much higher, fast. 

This creates two problems:  1) higher energy prices will weigh on the economic recovery, and 2) higher energy prices will feed into the inflation data, which will force the Fed (and global central bankers) to get to work on reversing the ultra easy interest rate environment — which will then weigh on economic recovery.

Here’s a look at the chart of oil as we end the week.