Executive Summary
Since the beginning of Apr ‘24, crude oil has been declining towards $70 per barrel, a key support area. The positive correlation between the crude oil price and the US inflation rate indicates that crude will have to go below $70 for inflation to lower. On Sep ‘24, the Federal Reserve is expected to cut its first interest since Mar ‘20; this rate cut expectation also implies that crude oil will be trading below $70 by Sep '24. In conclusion, we do not find it necessary to buy any utilities, staples, or energy ETFs right now; stay invested in the S&P 500 and lock in some high-yield savings accounts, 5% or higher, as they are less likely to remain above 5% in 2025.
Why Investors And Traders Should Care About The WTI Crude!
The West Texas Intermediate (WTI) Crude is a major leading economic indicator of the health of the US economy. As one of the most traded commodities in the world, the price of crude oil can give investors valuable insights into consumer and business spending; crude oil can be refined into gasoline, petrol, diesel, and petrochemicals. Whenever crude oil price spikes the risk of an economic recession increases significantly. By the end of this investment report, investors and traders should be able to understand the impact of the crude oil price on the economy.
Key Points
In the past five years, crude oil has been as low as $16.94 and as high as $120.67. Year-to-date, crude oil is up 13.7% on an MoM and YoY basis it is down -3.4% and up 11.2%, respectively. It peaked at around $120 on 30 May '22. It has been now since Nov '22 that crude oil has failed to break above $90 or fall below $70, making those two possible resistance and support areas, respectively. Moreover, it has been moving above the 200 Simple Moving Average (SMA) since Q1 '21. Lastly, on Sep '22, the price of crude oil reversed to the downside, and it has been moving sideways ever since.
Investment Analysis
In most cases, the price of crude oil tends to spike into a recession and then fall during one; however, not all spikes lead to economic recessions, as in the 2022 case when the job market was healthy during a crude oil spike. Crude oil and inflation are positively correlated because businesses and consumers are the end users of crude oil refined products such as fuel and petrochemicals; in the past twelve months, inflation has slowed because crude oil has been relatively stable. If the trend is to continue but to the downside, transportation costs, energy bills, and petrochemical products will fall as well. With the US inflation rate at 3.4% and the interest rate at 5.50%, consumer spending will likely slow down. A slowdown in the US economy caused by higher interest rates from the Fed will make a recession an inevitable event. Our mid-term investment recommendation is to stay invested in the S&P 500, put your money into a high-yield savings account, and buy some treasury bonds if trading at a discount. Stay away from utilities, consumer staples, and energy stocks.
Comentarios