Shorting Crude Oil As CPI Inflation Jumps to 8.5% in the US

Crude oil sent shivers through major global economies as US WTI crude surged from below $100 to $130 when the US placed sanctions on Russian oil. But, no one followed the US in regard to sanctioning oil and gas imports from Russia and oil reversed back down.

The surge in inflation is also weighing on oil prices, since higher prices are expected to be a drag on the global economy. Today’s CPI (consumer price index) inflation jumped to 8.5% in March from 7.9% in February. The White House warned ahead of this report that it expects inflation to be ‘extraordinarily elevated’. Oil has been retracing higher in the last few sessions as Russia-Ukraine talks seem to go nowhere from what we have heard, but the slowdown in the global economy will likely have a larger impact on oil prices. Let’s look at the inflation numbers:

US March CPI Inflation Report

• March CPI YoY 8.5% vs 8.4% expected
• Prior CPI YoY was 7.9%
• CPI MoM 1.2% vs 1.2% expected
• February CPI MoM was 0.8%
• Full report

Core CPI:

• Core CPI YoY 6.5% vs 6.6% expected and 6.4% prior
• Core CPI MoM 0.3% vs 0.5% expected and 0.5% prior

Details:

• CPI energy +11.0%
• Gasoline +18.3%
• New vehicles +0.2%
• Used vehicles -3.8% m/m
• Owners’ equivalent rent +0.4%
• Real earnings -1.1% vs -0.4% prior

I think the conversation will start to change on inflation when the month-over-months numbers begin to flatten out. For April (as it stands), there will be large negative pressure from gasoline prices if oil stays near $100. The fall in used vehicle prices will also be a drag on inflation for the foreseeable future. That said, with the lockdowns in China we could be on the cusp of a new round of supply chain shortages.