Crude Oil: A reawakening for Inflation & Group Think?

Commodities remain on the verge of a super cycle, marking the ongoing restrictive monetary conditions for financial assets and consequential secular inflationary forces ahead (Figure 1). This is also fueled by the Kondratieff wave, as cited in previous SAMT forums, marking a new winter season, amplified by a great debt burden.

However, contrarian signals remain overstretched at polarised extremes, anchored by the most consensus expectation for global inflation deceleration in history, even lower than during the 2008 GFC (Figure 2). The latest upsurge in commodities, notaby energy, signals a potential reawakening for both inflation and group think.

This also concides with rates (US10Y) snapping back above 4% and signalling a big move ahead for oil prices (Figure 3). Moreover, the oil market’s risk/reward appears heavily skewed towards the upside after being depressed by almost 50% from peak-to-trough.

Investor sentiment has already bounced sharply from historic extremes, expecting strong performance for H2[…]