Oil Shock, Crude Surges 20%, Treasuries Untouched: One Is Wrong, Which One?

-edited

In the wake of the attack on Saudi Arabia, crude futures jumped as much as 20%. Treasury yields are flat. One is wrong!

Oil Futures Up 20%

The Financial Times reports Oil prices jump 20% After Attacks Halve Saudi Output.

This is in the wake of a Saudi Oilfield Attack over the weekend.

Questions Abound

By Yemen, Iraq, or Iran? Israel?

Production Back Up When?

See the above link for discussion.

Treasury Yield Flat

Meanwhile, I note US Treasury yields are flat.

As of 8:20 PM central Sunday evening, there is no change in 3-month, 5-year, 10-year, or 30-year treasury yields.

Economic Sense

I propose there is little economic sense to this reaction.

Oil shocks are inherently recessionary.

Theoretically, this could be an inflationary recession like the 1970s.

But really?

Global Fairy Godmother

With stocks priced well beyond perfection, a collapse in global trade, a UAW Trade Strike Involving 48,000 Workers, and trade war threats between the US and Europe (and the UK and Europe), this all seems strange.

Then again, perhaps the Global Fairy Godmother will solve all the issues and restore global inflation (as measured by central banks).

Mike "Mish" Shedlock

Comments (55)
No. 1-20
lol
lol

The economy is so dead (collapsed) for so long,300 dollar oil couldn't make any difference,full scale nuclear attack from China and Russia simultaneously wiping every major US city and futures would still be at record highs,welfare checks will still go out.....(maybe a couple days late)and the dead ass zombie economy will hardly skip a beat!

Country Bob
Country Bob

.

Treasuries are an artificial "market" controlled by the Fed. NY Fed closed for the weekend. Seems rather straight forward

.

Harry-Ireland
Harry-Ireland

Looking at the utter incompetence of our so-called leaders, experts and central bankers, the out of control debtlevels and geopolitical madness...how can this not end in a massive downturn and depression. All this posturing and negative interest-rate madness does not work. The filthy rich got ever filthier rich, meanwhile there's no real wagegrowth for the average worker and they're reaching recordlevels of private-debt. Mish...how about a segment on the disparity between said groups? And thanks for the great articles of late.

numike
numike

“Were the Soviet Union to sink tomorrow under the waters of the ocean, the American military-industrial establishment would have to go on, substantially unchanged, until some other adversary could be invented. Anything else would be an unacceptable shock to the American economy.” ― George F. Kennan

2banana
2banana

And Gold is...up about 1%...

abend237-04
abend237-04

I may be the only one on the planet feeling this way, but I no longer view Treasuries as a safe haven bet. I think they've been massively over-bought, driving yields into the mud. We can debate how far into the mud, but it's mud. A run back above 3% on long bonds will result in a capital loss rivaling an average junk bond default haircut.

Ted R
Ted R

They both are wrong. Everyone is stuck right now. No one knows how to play this current economic environment.

Mish
Mish

Editor

"No growth in wages? You must be kidding me. My company payroll went up 25% YOY. Stop this nonsense."

It is beyond absurd to propose that what is happening at your company represents a national trend.

Mish

Jojo
Jojo

Knew there would be an oil jump, which is why I filled my car gas tank yesterday. I'm so smart!

caradoc-again
caradoc-again

Am I misinterpreting the top photo or do those strikes look quite accurate and well defined? Carefully placed.

Very capable rebels or someone else?

Six000mileyear
Six000mileyear

What the post-event behavior of oil and bonds shows is they are separate markets. One does not necessarily have to move with the other.

MrGrummpy
MrGrummpy

"You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."

  • Rahm Emanuel

"I have also informed all appropriate agencies to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other States."

  • Donald J. Trump
Sechel
Sechel

China's economic growth just hit a 17.5 year low. Saudi Arabia incident comes at a time when the U.S. is engaged in a trade war. China has been the marginal factor on world energy consumption and with world economies sputtering effect may be muted. Still a wake-up call to end the silliness over trying to stop energy conservation and light bulbs that make Trump's face look orange and trying to solar and wind consumption claiming windmills cause cancer.

Rajneesh
Rajneesh

May be you are trying to find co-relation between two things, when there is very little co-relation to be had. Oil has fluctuated between $65-55 range for last six months and hardly had any impact on inflation on the up or down side. The one day spike is likely a panic reaction, such things subside within a few days. Even if not, it has taken oil to $60, almost middle of its trading range. For financial types, maybe a big deal, but treasuries represent our economy and this spike is going to have negligible impact, hence negligible reaction.

Sechel
Sechel

U.S. has declared economic war against Iran. They're responding with mining seaways and blowing up Saudi Arabian oil installations. U.S. blew up the Iran deal and is trying to suffocate Iran economically. Iran doesn't have an economic weapon so if we are to believe the Trump administration Iran is upping the ante.

6 Replies

2banana
2banana

Please explain this "deal."

Was it a treaty approved by the senate? Was it a law passed by the house and senate and signed by the president (like current immigration law, the defense of marriage act, etc.)

Or was it a dude just making up something that in no way binds any future dudes.

"U.S. blew up the Iran deal"

Sechel
Sechel

The Constitution recognizes a distinction between “treaties” and “agreements” or “compacts. What ever you call it we were honoring it. Responding with a word salad doesn't prove anything.

Webej
Webej

Didn't just blow up the Iran deal, but blew up relations with the other countries party to the agreement, which includes the permanent members of the security council. Good luck with anybody trusting any future deals. The deal about expanding NATO was also forgotten soon after.

Sechel
Sechel

excellent points

2banana
2banana

All these other countries know how American laws and constitution work.

And they knew a dude making up a "deal" in no ways binds future dudes to that deal, changing the deal or ripping up the deal.

NATO exists because of a proper treaty that was constitionally approved.

And you don't see the irony.

Webej
Webej

In 1989 they promised that NATO would not expand eastwards even a thumb's breadth. Trust in the USA is at an international deep point, the lowest in at least 100 years.

Other countries have concluded that the USA is a loose cannon, and that no future dude will feel obliged by the current dude.

THX1138
THX1138

Mish,

Regarding the 70's inflationary recession...

How many times has the U.S. experienced an inflationary recession? I was under the impression the 70's was a one-off due to the dollar being un-tethered from the gold standard in 1971.

KidHorn
KidHorn

We're going to blame Iran, no matter what evidence is uncovered. And with the Saudis and Israel hell bent on eliminating Iran, a war is inevitable. Particularly if a dem wins in 2020.

ZZR600
ZZR600

This attack hasn't broken the long-term downtrend in oil. It looks like a hiccup. If you can take out a significant proportion of the world's oil capacity and still get what amounts to a rather muted reaction, this says the world economy is in far poorer condition that policymakers make it out to be.

Sechel
Sechel

Yes oil shocks are inherently recessionary. But oil consumption is relatively inelastic. We still have to drive to work and heat our homes. Not sure how much demand goes down as the price rises.

Rajneesh
Rajneesh

The treasuries were right not to react ... Oil markets were hasty to react to an event which will have little bearing on prices after a couple weeks, when supplies are to be fully restored.