Oil plunge continues
Commodities can struggle when real interest rates are high.
As nominal interest rates rise and inflation falls in real time, thus it is proving.
Crude oil prices plunged on the open today, and are now a thumping -42 per cent lower than a year earlier.
This is the sort of precipitous decline which normally indicates a looming recession, at least historically.
Source: Bloomberg
It may be different this time, as they say in internet-land.
With crude prices now breaking under $68/barrel, analysts are busily slashing their forecasts, and the close of $67.99 was the lowest closing oil price since all the way back in March 2020.
Investors are concerned about a glut of oil supply flooding the market from Russia, Venezuela, Iran, and Guyana all at once, as demand drops as a result of the global economic slowdown.
Disinflation ahead
Hopefully this is another sign that the peak of the interest rate cycle is getting closer.
There was a brief rally in oil prices which March and April, which led to some analysts suggesting that inflation would be stickier as a result (even though crude prices were a quarter lower year-on-year at the time).
That argument has now been faded, with oil prices continuing to trend lower.
US crude futures settled sharply lower, down another -4.4 per cent, portending disinflation ahead.
US inflation figures due out this week are expected to show year-on-year consumer price inflation falling from 4.9 per cent in April to just 4.1 per cent in May, and further declines are likely over the coming months.
That would be another very decent leg down towards the inflation target.
The Federal Reserve is expected to pause interest rates this month to take stock of its progress.
In the Eurozone inflation peaked later, but has fallen from a peak of 10.6 per cent in October to 6.1 per cent in May.
