Oil is plunging today in a continuation of the move since the US midterms.
The market is sensing that the White House is desperate to find a way out of an unpopular war, hoping to turn the page on a decision that sparked a jump in oil prices and problematic inflation.
Now that’s easier said than done but there is a report that JD Vance will head to the Middle East next week to negotiate directly with Iran. Those sorts of meetings generally only happen when the broad strokes of some kind of agreement are worked out.
Of course, there have been so many false reports about Iran and the sourcing on the Vance report is iffy but there have been a multitude of leaks lately that suggest there is some real progress. And the price action in oil is undeniable.
Brent crude is down $5.18 to $93.10 today and that cuts through the 200-day moving average, a level that held last week.
The drop today puts brent at the lowest since early September.
As you can see, the 200-day hasn’t been pivotal in the past two months but the speed of selling down to $93 from $118 is dramatic and meaningful, not only for oil but for the macro picture.
Partly in response, the S&P 500 is up 1.2% today to 7466. Ultimately, Trump measures himself based on the stock market and the best thing he can do right now to support it is end the war and give the Fed a reason to pause rate hikes. At the moment, the market sees a 81% chance of a December hike and 50 bps of hikes through the coming year.
Obviously oil has moved quickly here that reflects positioning rather than real demand, so it’s vulnerable to a bounce. If we can get a resolution in the war, I think we can get below $80 and it should stick around the $80-85 level as inventories are rebuilt.
This article was written by Adam Button at investinglive.com.