There has to this point been one key element missing from “reflation.” Or maybe it hasn’t been missing, it just hasn’t been consistent with what I would consider that term to mean. The WTI price remains quite range-bound even though there is at the moment only wind at its back. OPEC had just pledged less production, and though US production has come up a bit it is largely still depressed. And more than those there is a great deal of risk appetite appearing in so many markets.

But WTI only trades back and forth, managing above $50 as now only on occasion. All that has been managed so far is to erase the second oil crash (to the low on February 11) which was actually the smaller one. Perhaps it is just beginning to break out, but there are suggestions that this might be as good as it gets, relatively speaking. For one, the WTI futures curve is now, to put it mildly, odd. The natural state of that curve is full backwardation short to long; that is the negative time spread that keeps oil flowing in current markets rather than being directed to sit idle in storage awaiting future release. Unlike gold or some other commodities, there is very little benefit to unused oil (unless, of course, you are China and wish to convert “dollar” lending into tangible financial collateral).

The futures curve has flattened out before, notably at its high point in early June. But at that time it had done so in consistent fashion as you would expect of normalization, which is what “reflation” is really supposed to be about. In other words, the downward “hook” that is the telltale sign of ongoing “dollar” problems should erase to where the front end bends back up in a smoother reverse (backwardation). At June 8, that almost seemed to be where it was going.

Over the summer, particularly after early July, “dollar” issues were reformed maybe in other outlets to where contango in the front not just reappeared but stayed no matter what the rest of the curve did. It has led in more recent weeks to what you see above, where we now have the sharp contango front of the “dollar” married to a limited but noticeable backwardation mid-curve and out.