$100 Oil: A New Normal?
Crude oil prices have surged past $100, marking its second strongest weekly gain since the Iran conflict began in March. The recent inflation data has taken center stage, but continued strength in oil prices could add definition to inflation expectations for both core and non-core readings.
The relationship between stock sell-offs and rising USD with increasing oil prices is not always straightforward. In some cases, like early-March's sell-off in stocks along with a rally in the USD as oil prices jumped above $100, the connection is clear. However, in this instance, there seems to be an awkward waiting period for another factor to come into play.
The upcoming CPI report due tomorrow morning and US Treasury yields reaching multi-year highs pose significant concerns. The US government faces a trove of debt maturing over the next year, yet austerity or higher taxes do not appear to be in consideration. President Trump and US Treasury Secretary Scott Bessent have both stated that they will 'grow their way out of debt.'
The earlier oil price flare-up presented a similar issue but was resolved by adding supply through the Strategic Petroleum Reserve (SPR). However, with inventories drained and the ongoing conflict in Iran expanding, concerns arise that the SPR's assistance may not be as effective this time around.