On Yesterday's Optimism and the Prospects for Oil Prices

Oct 15, 2021

Yesterday, without a doubt, can be written into the asset of the supporters of risky assets. The stock market was growing, cryptocurrencies were growing, commodity markets were growing. The successful start of the reporting season was named as the reason. Indeed, banks are beating analysts' profit forecasts with one left hand.

But few people think about the true nature of the sharp rise in profits. This is, in fact, about purely accounting nuances associated with shifting money from one pocket to another. Banks are releasing reserves en masse, which is reflected in the financial statements in the form of profit growth. And let's not forget that excess money has created a golden age for investment banking with its asset management and financial advisory services.

In general, banks are not an indicator. As not an indicator, and companies that make money in the commodity markets. Well, how could the same Alcoa show weak financial results if prices for aluminum have grown by 50% since the beginning of the year?

All of this is about looking at the companies that are manufacturing and what they have to say about rising costs due to inflation, bottlenecks in global supply chains, and shortages of human resources and semiconductors.

By the way, about inflation. US manufacturing inflation data was released yesterday, and it reached its highest ever recorded mark. Yes, the history of this indicator has been going on since 2010, but still, it sounds impressive. That is, the ring around the Fed is shrinking. And although the markets do not want to think about tightening monetary policy, with each new piece of data it seems more and more inevitable.

Another, in our opinion, inevitable process in the future is a drop in oil prices. Yes, here and now you should probably not count on this, but in a couple of blocks - quite. Although data on US oil inventories (growing for the third week in a row) already signal a market transformation and a transition from deficit to surplus, this process is likely to take several more months. According to IEA estimates, the transition will finally be completed at the start of 2022, at least if OPEC + continues to increase production by 400K b / d every month. So as strange as it sounds in the midst of the energy crisis (when everyone wants to buy), oil sales are a promising undertaking, but with development in 2022.