There was talk of a “toxic cocktail” on Thursday amid elevated bond yields and a bubblin’ crude.
It’s occurred to me recently that very few readers appreciate the Jed Clampett references, but with Cushing tanks at 25%, the SPR diminished, the supermajors jaded by the green transition and a petulant prince curbing supplies to prove a point, the US may need to start firing rifles into the mountain underbrush on the off chance something froths up.
WTI hit $95 for the first time in more than a year and its prompt spread was the widest in 14 months.
“Cushing is dry,” one observer told Bloomberg. Not quite. But close!
That means everyone’s a deputized physical commodities trader for a day. Feel free to randomly toss around terms like “operational minimums” and “tank bottoms” to impress your friends. Nobody will ask you to elaborate. It’s the same 24-hour intellectual impunity that lets everyone say “OIS” on FOMC days (for the uninitiated, that’s just an acronym for “Otters Interested in Snowboards”). Since 2022, everyone’s enjoyed similar immunity when it comes to saying “geopolitics” without having to explain what it means.
Anyway, backwardation! Posting-plus! Elly May! It’s all ominous for the inflation fight, and it’s politically troubling for the Biden administration. It puts upward pressure on bond yields, risks piling higher breakevens atop the reals-led rates selloff and might be more fuel on the fire for the red-hot dollar which, you’re reminded, is arguably a petrocurrency now+. Note that there’s a feedback to reals too — if higher crude is seen as a possible catalyst for a more hawkish Fed, that’s an argument for higher reals.
When Cushing stockpiles were last this low, the prompt spread was $3.50 and WTI futures traded through $100.
Brent’s along for the ride, obviously. Futures volumes are running the highest since March. Apparently, WTI $105 calls for November are popular.
If anything, you’d think the rally is poised to take a breather, and the same goes for the dollar. And the rise in long-end US yields for that matter. But I would’ve been remiss not to mention crude on Thursday. After all, “Cushing is dry.”