Updated: Nov 19, 2021

CL and RB are both off about 12% since our Oct 25 short call.

CL is coming up on the top of its rising white channel – a potential turning point. It’s probably close enough to be shorted here at 85.23.

I’ve been skeptical of oil’s rally for quite some time, observing almost a year ago [see: Don’t Ignore Inflation] that the YoY price rise would drive inflation well above the Fed’s target range.

Frankly, I’m surprised that it took investors this long to get nervous nervous. IMO, the Fed’s “transitory” story was cockeyed from the start.

As we approach an important inflection point — our 73.50 target — the question shifts to how much further oil/gas prices need to go in order to put the inflation monster back under the bed.

continued for members…Remember, CL has broken out above a very long term channel top. The 73.50 target represents a backtest of that channel.

The closeups:

There are two ways to look at this. If the recent breakout was just a trick to keep stocks rising into OPEX or month-end or year-end, then okay. I get it. Fooled me again. Much more downside ahead.

But, if the supercomputers have run the numbers and holding oil at 73.50ish through November and December will take enough heat off CPI, when it’ll probably flatline right there. The key, remember, is gas more so than oil.

It’s too early to say precisely, but this 12.8% drop (so far) in RBOB should put the YoY delta in gas prices at about 61% for November, with December coming in at around 45% if prices level off here. Every month it holds steady, RB gets that much closer to a YoY unch. At some point, that will make enough of a difference to offset some of the other non-energy inflationary pressures.I think the threshold will be around 35-40% YoY, but we’ll see. I’d keep my bets short term.

The trick is to keep interest rates from breaking out, which means the Fed has to put the brakes on inflation right here and now. GLTA