Oil Scorching Everything On Earth

The thudding crud you hear falling to earth is crude oil. West Texas Intermediate has demolished the $27 per barrel barrier and looks set to hurtle down further. Brent North Sea is not far behind.

WTI is down 6.7% on the day, its lowest settlement since 2003. Brent, while down, is up off its earlier lows.

Venezuela requested an emergency OPEC meeting to discuss what actions could be taken to support prices but that did not trim declines. The downward rush is beyond talking help. Caracas is a tragedy. They are more naturally aligned with North America in oil markets but their anti-U.S. tilt has led them down the primrose path with OPEC.

Hopefully soon there will be a Western Hemisphere counterbalance to OPEC’s outsized influence on energy.

Equities worldwide sank to their lowest level since July 2013, and the index's fall so far in January is 9.9% the biggest drop since 2009 before the turnaround from recession began.

The International Monetary Fund’s chief economist, Maurice Obstfeld, warned that global financial markets seemed to be overreacting to falling oil prices and the overblown fears of the risk of a sharp downturn in China's economy. Thus demand concerns are compounding an already bearish energy market.

"The oil price puts stresses on oil exporters... but there is a silver lining for consumers worldwide, so it's not an unmitigated negative," Obstfeld chided.

Bloomberg reported that The International Energy Agency, which advises industrialized countries on energy policy, warned on Tuesday that the world could "drown in oversupply" of oil in 2016, with Iran's exports piling into the excess.

Turning very briefly to equities. We think the bottom of the correction is coming “soon.” We’re reluctant to call it. But, we do believe that the Fed meeting next week will return no new rate hike and the commentaries will certainly allude to what is happening to equities all over the planet and how real economic growth (As opposed to stock-price growth) can be maintained.

Mostly soft real economic news and data will drive the Fed status quo.

The U.S. December CPI showed a 0.1% decline. The core inflation measurement was much more robust at +2.1%.

Building Permits fell 3.9% in December. Housing starts fell 2.5%. The seasonally adjusted annual pace remained above 1 million.

As you would expect, gold entered the fray as a safe haven buy. It rose $13 or a little over 1.20%. Silver was also up over 1.00%.

Bond yields were down, which means face price is up. So, T-bonds are functioning as a second safe-haven play for the moment.

The yen is functioning as a haven bet, offering super low risk in exchange for even lower returns. Japanese bonds are offering 0.212% return on government bonds.

OK… buckle up!

Wishing you as always, good trading,