Monday's Market Minute: Stubbornly High Crude Oil Causing Headwinds For Stocks

It’s shaping up to be a busy week for commodities with WTI Crude Oil futures (/CL) trading just shy of $88. At these stubbornly elevated levels, it’s being closely watched ahead of the Consumer Price Index data due out Wednesday. Rising oil prices have been on the radar for weeks, but only recently started presenting a headwind for stocks and the broader move up we’ve seen in the indices this year. The S&P 500 fell from its highs around 4,600 in July, which coincides with a steady runup in energy prices – most notably in crude oil from the July low around $66 to $67 to near $90.

The move up in crude comes in reaction to several factors, including OPEC’s recent decision to extend production cuts and a few large inventory draws. The U.S. Dollar, while off its recent lows, still has not posed a major headwind against the fundamental narrative as U.S. data suggests the economy remains strong. This combination of strong demand and supply cuts equates to higher prices. The move back above $85 in oil puts us once again above the 50-day Simple Moving Average and to levels not seen since fall of last year, opening the door for a retest of the double top around $95.

This is all ahead of a busy week for energy markets and commodities in general, as the World Agricultural Supply and Demand Estimates (WASDE) report on Tuesday could stir grain markets. But with crude oil at this upper extreme, traders may wish to keep an especially close eye on comments from the International Energy Agency (IEA), the Energy Information Administration (EIA), and OPEC.

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Many feel OPEC cuts have come as an effort to drive prices higher, but one could argue they’re more concerned about demand destruction. The reports this week will provide further insight as to the reasoning behind the production cuts, whether traders should expect more to come, and potentially how long beyond December they could last. Unfortunately, with crude oil prices on the rise, the inflationary pressures the Fed has been working to combat may follow suit.

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