Oil may get cheaper and it still won't help your portfolio
The market is waiting for a barrel to fall and takes it as a sign of relief. But this year's inflation isn't born in oil fields. It's born in refineries, and according to forecasts nothing changes there even in 2027. What will that do to stocks, bonds, and rates?
Key points
Brent is a fifth below its September peak, but diesel in Europe and the US is simultaneously breaking records
There's a number that this year decides inflation more than the price of a barrel, and most investors have never seen it
The US EIA expects cheaper oil, yet still counts on expensive diesel all through 2027
The Fed chair admitted at a press conference that the bond market isn't watching oil, but something completely different
Two companies from the same sector may end up this year on opposite sides of one invisible boundary
The wrong thermometer: a barrel jumped, but something else hurts
On Thursday, October 8, oil was again the headline of the day. Iran intensified attacks on tankers in the Strait of Hormuz: according to Kpler data, a record 10 were hit in a week and on Tuesday only 7 ships passed through the strait. At the same time, Hurricane Isaias was approaching the Gulf Coast and operators shut down about two-thirds of offshore production there. Result: Brent closed at $104.28 per barrel, up 4%, and during the day approached the $106 mark.
From a distance, however, it looks different. In September, Brent averaged $114 and on September 15 touched $131. Today's price is a fifth below the peak. If a barrel decided your portfolio, you'd have reason for relief.
But diesel reports no relief. In the US, a gallon of motor diesel averaged $6.29 in September and reached a record $6.53 at the end of the month. In Europe, a liter of diesel climbed to a record €2.24 against €1.59 before the war. According to Eurostat, energy prices in the eurozone rose 18.8% year-on-year in September and overall inflation jumped to 3.8%, the highest since 2023. All this in a month when oil was falling from its peak.
If you only watch the price of a barrel, you're looking at the wrong thermometer.