ELAM: Oil gets walloped

Crude oil and gasoline prices this morning are sharply lower, with crude falling to a 4-month low and gasoline sinking to an 11-month low.

Barchart.com, Thursday, November 16

At 12:26 p.m. Thursday, December crude futures are down $4.04 or a full 5%+ from Wednesday’s range. That makes the current price for December $72.44. December gasoline futures were $2.60 as recently as September. Today prices dropped eleven cents to $2.09. No doubt Team Biden will claim credit where no credit is due. Were the election next week he would have a good talking point. But the election is a year off. With two wars underway, the oil market must be seeing declining demand ahead, which means a weaker U.S. and world economy.

World wide crude oil is priced in dollars. The U.S. dollar has risen from 99 in July to over 106 in October. Thursday it was trading at 104. This means the energy sector is falling even with a falling dollar. That translates to a lot of weakness.

Speaking of weakness, here is another headline warning against betting on a turn in China’s housing bust. China’s new home prices fell -0.38% m/m in October, the biggest decline in 8-1/2 years and the fifth consecutive month that home prices have fallen. Lower mortgage rates and interest free loans to builders to deliver unfinished apartments has not done the trick either. The last resort is the Chinese government itself. Estimates are that it would take more than twice what the government has committed thus far. Autocrats in trouble always blame an outside party, never themselves. If this continues Xi is likely to blame the U.S. for whatever reason as support for a move against Taiwan, wars divert attention from real problems.

The Dow Industrials are about 750 points below their July high. That high was 35,750 so keep that in mind. The percent of stocks over their 150-day moving average has risen to over 50%. So stocks as well as bonds continue to ride that famous fence.

Bonds have rallied since short rates hit 5%. The ETF TLT, a long dated bond fund, is up about 8% since then. The December long bond is 115.11. Watch for a weekly close over 115.24 to better assure a bottom in price has occurred.