2026-01-27 19:44:00
The weakness in crude oil prices over the past year have been a big reason why US inflation has diminished but so far this year it’s been a reversal. Crude has risen from $56 at the turn of the year to $62 on the April contract. It’s up $1.77 today or nearly 3%.
It’s testing the highs of the year and near the best levels since October.
WTI crude April
The rally in oil is a surprise given that many data points are showing that the world is oversupplied. Later today we will get a fresh edition of the API private inventory report and tomorrow we will get the official data. Over the past month, both have showed extreme rises in US gasoline inventories. As those stockpiles fill up, refiners will eventually ramp down oil buying and that will remove the marginal buyer.
A warning sign also comes from US consumer confidence, which hit an 11-year low today. If that translates into less vacationing and driving this summer, it will also hobble oil demand.
The likely driver of today’s rally though is the supply side. Cold temperatures in the US led to some freeze offs this week at well heads and diminished production. It’s also driving higher fuel oil demand in the regions where that’s used for heating.
In the bigger picture, Trump has repeatedly talked about the armada he’s sailing to Iran while he takes maximalist positions on negotiations and demanding Iran remove all its enriched uranium. It’s anyone’s guess where that’s headed but there’s always the risk that Iran’s oil industry is crippled in a fight.
In terms of positioning, the short side is very crowded in publicly available data so a break of $62.50 could lead to some short covering and generate some momentum for crude. Certainly the oil bulls are looking over at the precious metals complex at the moment with some real jealousy.
