ELAM: WTIC cracks $60 to the downside

Thursday US oil futures tanked 5.7%, the biggest percentage loss of the year. The DJIA recouped some of its losses in the final hour after falling 451 points earlier. Chip-makers have been hard hit.

Wall Street Journal Friday, markets hit As Trade Tow Escalates

We have warned for months in this column that the weakness in the Energy Service XES was flashing danger signals for oil prices. XES is already trading under its 2009 low of $12.50. And our prediction that the Trade War would not be easy to win is certainly coming true. China is surely watching the pain of soybean farmers, bicycle sales, and the 25% tariff on LNG shipments. Dorian LNG dropped 16.48% on Thursday. As previously noted, this will negatively impact the billion dollar investments in LNG export terminals along the Gulf Coast of Texas. Couple that with the Democrat call for impeachment. Indeed I suspect China, if not Canada and Mexico, as well, have decided to wait it out till the 2020 election before committing to anything.

Trump gets his wish for cheaper energy. Unleaded gasoline futures dropped 3.89% to $1.89. That and the drop in oil prices reflect inventory builds and the culmination of the 50% rally from $42 to $66 since December. The world is settling in for a protracted trade war.  US Companies are not necessarily coming back to the US. Instead they are moving out of tariff bound China to other locales like Viet Nam or Mexico.

The big drop in stock prices Thursday suggests a short term low. If the DJIA does not fall under 25,222 today (now 25,490 and up over 100 points this morning) congestion will probably continue for another week or two.

Negative mood is quickly spreading to markets worldwide. Prime Minister May looks to get ousted over Brexit woes. The German economy continues to slow. It is doubtful sanctions will oust regimes in Venezuela or Iran. India just re-elected Modi in on bright capitalistic move.

Instead of telling fellow Democrats to read the Mueller report, get over it, and accomplish something, Pelosi went for a compromise. Don’t impeach just insult. But that won’t satisfy the hard left. And if it comes to pass, the not so left Democrats may have to vote on impeachment. That will make for a tough sell to independents as a Republican Senate won’t confirm. Republicans need only to regain 18 seats to re-take the House. And now Trump has drooped infrastructure unless the Democrats back off. Expect conflict and impasse to continue.

Overall look for low stock and energy prices into Fall 2019.