Oil (WTI)

Think of it this way

It is the price of gasoline that everyone will pay in a few months. You can look at monetary data as much as you like, but if this rises, transport goes up, food goes up, the inflation figure goes up, and whoever is in charge of interest rates gets nervous.

What is Oil (WTI)?

Daily closing price of a barrel of West Texas Intermediate crude in dollars. It is the US oil benchmark, the one used for almost all contracts in the Americas.

How to read Oil (WTI)

It is overlaid on any macro chart. Rebased to 100 when several assets are turned on. Look at it above all against rates and the 2-10 curve: oil is the channel through which excess liquidity becomes measured inflation, and measured inflation is what forces the Fed to turn off the tap.

What Oil (WTI) means for the market

It is the asset on this list that responds least to liquidity and most to supply: an OPEC decision or a conflict on a shipping route moves it more than any Fed data. What is interesting is what happens when it rises at the same time as stocks and bitcoin. Rising financial assets do not bother the Fed: stock prices are not part of the CPI. Rising oil does, and through two channels. The direct one is that energy is a component of the basket, so more expensive fuel shows up in the inflation figure the following month. The indirect one is that moving goods costs more, and that ends up in the price of almost everything else. With inflation rising, the Fed cannot make money cheaper, and cheap money was precisely what was pushing stocks up. On the other hand, when financial assets rise and oil stays put, nothing forces the Fed to act and the expansion has more room to run. It is the asset that warns you when the party is about to end.

Where the money flows

From buyer to seller like any commodity, but with a path that ends in your pocket. Example: the refinery pays more for the barrel, the gas station raises its price, the trucking company charges more for delivery and the supermarket raises the price tag. That path ends in the inflation figure, and whoever sets interest rates reacts to that figure. In addition, every imported barrel means dollars leaving the country for a foreign producer.

What to watch in Oil (WTI)

The comparison that matters is against core inflation. If oil rises sharply, in a few months you will see it show up in headline CPI, and that takes away the Fed's room to inject. The most favorable combination for risk assets is oil falling while stocks rise. The worst is oil falling while stocks also fall: then what is being priced in is recession.

A reference asset. It is the one that turns liquidity into inflation, and that is why it constrains the Fed.