Economics: Why Doesn`t Oil Rally?

 (Drivebycuriosity) - The Saudis may be frustrated. They - and their OPEC friends - have been cutting oil production several times ( chart above bespoke ). And does oil go up? Nope. Oil stays on its trend southwards.

 

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It is interesting that the trend of sinking oil prices is going along with two other trends: Money Volume M2 is shrinking and inflation rates are dropping as well.

 

 

 

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                      The Pull Of Money

 

All price curves jumped 2020 & 2021. Monetary growth spiked 2021 - fueled by government checks & bond purchases of the Federal Reserve (I described that here ) - and started then its decline. Since December 2022 the money volume is shrinking (which did not happen in decades!). The price indices - including oil - all following with a lag.

This is not a coincidence. It´s known since the 16th century - and explained by Friedman & other monetarists - that inflation follows monetary growth witha lag (I explained that  here ). 

Now decelerating monetary growth - which turned into absolutely shrinking money supply - are constraining more and more the purchasing power of companies & individuals. Therefore the majority of prices are following M2 southwards. 

"Online Prices Fall to 36-Month Low, Down 2.3% In May" reports adobe.com.

 

 

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Prepare for deflation!