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An Unprecedented Shift in The Oil-Dollar Correlation Regime

Tyler Durden's picture




 

WTI Crude just surged from $38.50 to over $41 and at the same time the USD Index has been surging. In fact, the correlation regime between these two seemingly negatively correlated assets has entirely shifted since last week's FOMC Statement.

 

 

This is odd:

 

Another way of showing it: the correlation regime has dramatically shifted since last week's FOMC Minutes:

 

And Copper is surging also:

 

Because China is fixed? or "fixed"?

 

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Thu, 08/27/2015 - 10:55 | 6477415 Dr. Engali
Dr. Engali's picture

Yay! Higher gas prices! Our eCONomy is saved!

Thu, 08/27/2015 - 10:57 | 6477424 BandGap
BandGap's picture

Haven't seen it with the plunge so why would it move to the upside with this small increase? Oh yeah, refinary repairs.

Gas should be around 1.80 a gallon with the $110-->$40 decline.

Thu, 08/27/2015 - 10:58 | 6477430 SuperVinci
SuperVinci's picture

Hillary for Prison- 2016!

Thu, 08/27/2015 - 11:01 | 6477443 Dr. Engali
Dr. Engali's picture

Oligarchs for the Hanging Trees - 2016

Thu, 08/27/2015 - 11:04 | 6477454 kralizec
kralizec's picture

AKA "Government Repair Kit"!  Woo Hoo!

Thu, 08/27/2015 - 11:08 | 6477469 sun tzu
sun tzu's picture

Gas is $1.99 where I'm at. The government taxes gasoline by the gallon. That's about 60 cents of each gallon you purchase. Gas tax doesn't go down when oil prices go down. 

Thu, 08/27/2015 - 11:29 | 6477550 r101958
r101958's picture

Hedging for possibility of hurricane in the GOM.

Thu, 08/27/2015 - 11:46 | 6477637 sun tzu
sun tzu's picture

Hurricane is projected to hit the southeast coast of Florida. 

Thu, 08/27/2015 - 11:52 | 6477661 r101958
r101958's picture

'projected' being the important word there.

As an interesting exercise-Google 'path of Katrina'.

Thu, 08/27/2015 - 11:54 | 6477679 saints51
saints51's picture

I dont see it projected to be a hurricane at all much less enter the Gulf. Basically just a small burden for people with rain. Nothing extreme. Of course I am not God and some of the tribe does reside in Florida.....

Thu, 08/27/2015 - 12:03 | 6477695 r101958
r101958's picture

Just sayin folks. You don't hedge your bets after you know the outcome (i.e. get fire insurance for your home after a fire has started in the kitchen).

...and again-As an interesting exercise-Google 'path of Katrina'.

If I recall correctly, they were projecting that one to go up the east coast and amount to not much.

Thu, 08/27/2015 - 12:12 | 6477752 saints51
saints51's picture

I am talking about the possible rise of oil due to some tropical storm. I live on the Gulf coast and know the actual force from Katrina. My bets have been hedged way before hurricane season started. Its what people do who live in these areas. We are not surprised like the MSM makes it out to be.

Thu, 08/27/2015 - 12:43 | 6477909 r101958
r101958's picture

I understand. I live in Florida. I have watched the ebb and flow of oil prices for better than 10 years and whenever there is a threat or even possible threat of a tropical storm the oil specs price it in. This is, as you know, because the oil companies will evacuate drill rigs well before a tropical storm/hurricane gets near. This stops all production of oil from those rigs. There is also the possibility that refineries in the Gulf area will be affected.

Thu, 08/27/2015 - 12:53 | 6477957 saints51
saints51's picture

I agree. And maybe they are thinking it takes a Katrina path. Maybe they are reading the farmers almanac who predicts a hurricane I believe in September between Texas and Louisiana gulf coast which is more a Rita than Katrina. Either way both were bad.

Thu, 08/27/2015 - 12:57 | 6477982 r101958
r101958's picture

Yes. Who knows?It may have nothing to do with it at all but it looks familiar from past experience. If the price keeps going up, and the storm dies or turns away, then I may have to re-think it. Let's hope it doesn't enter the GOM.

Thu, 08/27/2015 - 13:07 | 6478022 saints51
saints51's picture

handshake on that one!!!

I hate hurricanes especially the cleanup. where I live it is normal for no power a min of 1 week after a storm.

Thu, 08/27/2015 - 13:27 | 6478091 r101958
r101958's picture

Yes. Agreed. I just finished hardwiring a small solar system into a solar switch panel. Won't power the entire house but will keep some lights and other small things going. For the rest I have a propane fed generator that is wired into another switch panel. Got to be able to run the well-w/o water it can get bad.

Thu, 08/27/2015 - 13:51 | 6478203 saints51
saints51's picture

have a natural gas gen and a small 5500W portable gen if it fails that will at least keep my fridge running.

Thu, 08/27/2015 - 11:42 | 6477616 ThroxxOfVron
ThroxxOfVron's picture

"Yay! Higher gas prices! Our eCONomy is saved! "

 

Putting a bottom under WTI or pushing/propping it up ( via futures? ) would be beneficial to the banks levered to the frack-patch, to the Saudi's ( who will have to sell US Treasuries if oil doesn't rebound ), and provide an 'infaltionary' data point for The FED to tout as a reason to raise rates.

This might be the next sector to be pumped: OIL.

Thu, 08/27/2015 - 10:56 | 6477418 pods
pods's picture

And gas prices jump up a buck. Just because.

pods

Thu, 08/27/2015 - 10:57 | 6477425 Argenta
Argenta's picture

Looking around at the world's financial landscape, there doesn't appear to be any real place to store wealth outside most commodities.  Stocks certainly aren't cheap by any measure.  Currencies appear to be one step away from a hyper-inflationary condition.  Why not buy things people actually use?

-Argenta

Thu, 08/27/2015 - 11:07 | 6477467 Osmium
Osmium's picture

While that is a logical conclusion, Logic has no place in the markets and investing.

Thu, 08/27/2015 - 11:47 | 6477647 lasvegaspersona
lasvegaspersona's picture

It is bad to hoard commodities (at least at a societal level). It raises the cost for things we all need and use. There is only one thing that can be hoarded without this problem, gold.

Thu, 08/27/2015 - 10:57 | 6477426 aliki
aliki's picture

ironic how the fed says they are concerned about price distortions when they are the ones causing the price distortions. we had oil go north of $100 because they were taking a flamethrower to the dollar. they end QE, oil implodes. now their concern is the lo price of oil, oil was on the ropes (was starring at a potential 20-handle), market blows-up monday, bullard/lockhart stick to their "wanting to raise guns", market stays down until a dead-cat bounce followed-up by a bounce yesterday & today which was predicated on dudley's punting on september raise potential. only reason we didn't melt yesterday and are up today in stocks + oil is because dudley is the #3 at the fed (after fischer & yellen). bottom-line, closer u get to the queen, the stonger ur words are. this heirchy of price creation is flat-out embarrassing & only ends 1-way (hint = not good).

Thu, 08/27/2015 - 10:58 | 6477432 falak pema
falak pema's picture

wait till the refineries shut down.

Thu, 08/27/2015 - 11:02 | 6477444 cordial savage
cordial savage's picture

Didn't they already do so?

Thu, 08/27/2015 - 11:44 | 6477628 sun tzu
sun tzu's picture

Sep-Oct is refinery maintenance for winter blend. 

Thu, 08/27/2015 - 11:02 | 6477446 saints51
saints51's picture

Goldman satan club warned oil could go lower last week. Here we are.

Thu, 08/27/2015 - 11:06 | 6477447 Squid Viscous
Squid Viscous's picture

Yahoo headline: Cramer: Bottom in Oil May Be Close...  Priceless!

He couldn't have been more bearish up until this am.

 

Thu, 08/27/2015 - 11:12 | 6477487 MSimon
MSimon's picture

At $50 the frackers will be back to work big time. Because even at $40 rig counts increased (by a very small amount).

Thu, 08/27/2015 - 11:27 | 6477538 wrs1
wrs1's picture

Those were probably rigs drilling to HBP or lose the lease.  I don't expect new drilling until we get over $60 and stay there for a while.  There have been lot's of really good wells in the Wolfcamp coming in at 1500 bbl/day the last few months.  Cimarex has some and so does BHP.  I expect both companies to drill more when oil stays over $60 for a while, in the meantime, they will make over $1m/mo on those types of wells if oil can get over $60.  That is when they will start thinking about drilling more but not before that.  My two BHP wells grossed $2.44m in June based on 45,000 bbl oil and 150mmcf gas.  During June they averaged $52.30 per barrel for the oil although the WTI price was around $60.  What they will do in the meantime is pay back the existing wells and build cash to drill the new ones at higher prices.  Infrastructure also has to catch up or there won't be any way to get the oil to market.

Thu, 08/27/2015 - 11:41 | 6477606 saints51
saints51's picture

You will not see $60. If you do there will be no more economy. People are broke.

Thu, 08/27/2015 - 12:21 | 6477809 CHX
CHX's picture

And if oil stays below 50 for an extended time, the US oil industry will quickly follow the path of the dodo.

Thu, 08/27/2015 - 12:25 | 6477836 Thalamus
Thalamus's picture

Oil runs the world so we're in trouble if we can't pay to extract--economic implosion

Thu, 08/27/2015 - 12:37 | 6477887 saints51
saints51's picture

Well time for oil industry to go bye bye. No reason with tech hidden from the public to not be used. What you mention is what happens when too many hands are in the cookie jar. You end up with a lose lose situation which the people and this blog constantly preach.

Thu, 08/27/2015 - 11:12 | 6477489 adr
adr's picture

For eight years all I heard from the financial press was that a weaker dollar made oil more expensive.

Now a stronger dollar makes oil more expensive???????

Thu, 08/27/2015 - 11:40 | 6477599 Irishcyclist
Irishcyclist's picture

Like you I'm confused.

We watch the EUR/Dollar exchange rate. Normally when the € appreciates against $, our oil price falls, when crude is at a price.

If the € falls relative to $, our prices rise when crude is at the same price.

 

 

 

Thu, 08/27/2015 - 11:47 | 6477645 RealistDuJour
RealistDuJour's picture

Go to Kitco.  You will understand Grasshopper. 

When buying outpaces the currency bite, you will still get an increase.  In an absence of excess buying/selling, it will be 100% correlated to currency.  Its called economics.

 

 

Thu, 08/27/2015 - 11:50 | 6477653 ThroxxOfVron
ThroxxOfVron's picture

The strength or weakness of the US Dollar has nothing to do with the price of oil.

 


IF it did then explain how this:  http://finviz.com/futures_charts.ashx?t=QA&p=m1

Corresponds with this: http://finviz.com/futures_charts.ashx?t=DX&p=m1

 

Answer: NO CORRELATION.

 

Supply and demand has nothing to do with the price of oil either.

Oil is manipulated just as FX crosses, libor, etc. have been and are...

Thu, 08/27/2015 - 11:49 | 6477657 sun tzu
sun tzu's picture

I noticed that too. Oil has been moving with the USD the past few of days.

Thu, 08/27/2015 - 12:19 | 6477787 CHX
CHX's picture

Buying oil in dollars (bottom fishing in the high 30ies) as a lucrative trade. Might be as simple as that ? 

Thu, 08/27/2015 - 11:13 | 6477492 Seasmoke
Seasmoke's picture

And Gold and Silver no longer follow each other. For about 2 weeks now. Very strange. Very dangerous.

Thu, 08/27/2015 - 11:23 | 6477529 saints51
saints51's picture

Also oil up 7% shouldnt circuit breakers trip to stop this move. I don't undertstand.

 

S/

/s

sarcasm

 

Thu, 08/27/2015 - 11:36 | 6477578 Superdave532
Superdave532's picture

Has anyone seen two cats recently? They've changed something in the matrix... 

Thu, 08/27/2015 - 12:10 | 6477737 Yen Cross
Yen Cross's picture

  Personally I think the $usd buying is more likely continued short covering in the Asian carry trade,($usd funded trades unwinding) and a slowing of of the China euro carry trade.

  As the euro funded capital outflows in China slow, the euro buying has slowed a bit, giving a boost to the $usd.

 The rise in oil is probably more inflation related after Dudley made his asinine comments about more easing.

 

Thu, 08/27/2015 - 12:16 | 6477769 CHX
CHX's picture

Nothing is "fixed" anywhere. It's stealth and global QE. CBs et al sold/shorted on Friday and are now reramping the "markets". 

Thu, 08/27/2015 - 12:21 | 6477808 pragmatic hobo
pragmatic hobo's picture

cough ... month-end window dressing ... cough.

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