Oil rose about 2% yesterday following the announcement that Saudi Arabia will extend its unilateral oil production cut by another three months. Its daily production will hold around 9 million barrels a day, the lowest level in several years. The move exceeded market expectations.
How will this impact inflation? As widely discussed, the Administration changed how the government calculates CPI believing oil would decline in 2023, not rise. Crude is now at the highest level since November 2022.
There are few options as to how to lower prices. Additional releases from the strategic oil reserve are not an option given low inventories, the result of earlier year releases to combat the previous rise in crude.
As noted several times, according to the Treasury Department, approximately $7 trillion in debt needs to be rolled over between now and December 31 and almost one third of the entire national debt needs to be rolled over within the next 12 months. Who is going to buy this debt and at what interest rate.
How will the rise in crude impact interest rates, an environment compounded by the government’s insatiable need for funds. Washington may perhaps acknowledge its spendthrift measures only after a market dislocation.
Markets were mixed yesterday. For the exception of oil, equities were generally lower. Bond yields nominally higher.
Last night the foreign markets were down. London was down 0.65%, Paris down 0.67% and Frankfurt down 0.35%. China was up 0.12%, Japan up 0.62% and Hang Seng down 0.04%.
Dow and NASDAQ futures are flat and down 0.30%, respectively. The 10-year is up 5/32 to yield 4.25%. How will the markets respond to the widely followed, but unofficial estimate of GDP by the Atlanta Fed now has the economy expanding by 5.6% on an annualized basis, the greatest growth since 3Q03 [ex COVID distortions].
