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<\/p>\nDr. Ken Rietz<\/p>\n
August 8, 2024<\/p>\n
No one was expecting what happened last week, but it seems everyone has explanations, none of them alike. Panic and hysteria were lingering around the edges. All the major US (and most global) indices dropped while crude oil and natural gas made a remarkable effort at trying to go up and down at the same time. The first dozen entries of an internet search for \u201creasons for recent market turmoil\u201d will provide you with at least 20 different causes, most of them plausible. It seems as though no one is willing to give up on a \u201csoft landing\u201d for the US economy, and when the data began to hint otherwise, everybody went berserk. In this commentary, I will focus on crude oil, the most whipsawed commodity of the last week, and examine what, to me, are the likeliest factors responsible for its movements. But note that the same arguments hold for natural gas. First, here is the graph of the NYMEX WTI front-month contracts.<\/p>\n
<\/p>\n
Figure 1: The front-month NYMEX WTI crude oil futures.<\/p>\n
The graph of ICE Brent crude is nearly identical. Now, let\u2019s get to explaining the WTI crude oil market behavior at the end of last week.<\/p>\n
There was a sharp increase of 4.26% in a single day, July 29th, an exceptionally large jump. The next two days saw a total plunge of -5.97%, another remarkably large change. Why did these changes happen? Equally large changes were going on in other parts of the market, so the reason is not about crude oil itself, but events of global reach.<\/p>\n
The event on July 29<\/a>th is simple to see: On that date, Israel killed Fuad Shukr, a Hezbollah commander believed to be connected to the killing of 12 children and teenagers in Israel. This increased the potential for an active war between Israel and Hezbollah (backed by Iran). The markets are prone to spike when such outcomes raise their heads.<\/p>\n The drop in crude oil prices over the next two days is less obvious, especially because Israel is believed to be responsible for another assassination, this time of Ismail Haniyeh, the leader of Hamas who was in Tehran at the time, and who is believed to have masterminded the October 7th massacre in Israel. This was an even more significant assassination because Haniyeh was in a military safe house, closely guarded. Iran immediately indicated that it would move in a harsh retaliation. So, it is easy to think that the price of crude oil would spike even higher. Instead, it dropped. This requires more careful discussion.<\/p>\n Was the market taking that situation into consideration? Of course it was. But Iran also indicated it would be careful about planning the retaliation and take its time doing so. So, it is possible the markets sidelined their reaction until something happens. In the meantime, the US government put out a jobs report on July 30th that was dismal, reporting only 114,000 new jobs in June, when the market was expecting about 175,000. The market was stunned.<\/a> Such as low number was interpreted as the note that showed that a recession was near. This was further reinforced the next day by US unemployment rising to 4.3%, the highest in nearly three years. The overall<\/a> market continued its drop as a result, as did the crude oil price.<\/a><\/p>\n The VIX, commonly referred to (with some justification) as the \u201cfear index\u201d spiked at one point Monday to 65.73% but dropped back rapidly. There is no question that the market is nervous, but as time goes on, and the sky does not fall, the nerves will moderate. As of Wednesday morning, the price of WTI is rising, but not as aggressively as it dropped a few days ago. It is acting as if it is bouncing into a consolidation phase rather than into a recovery back to prices two weeks ago.<\/p>","protected":false},"excerpt":{"rendered":" Dr. Ken Rietz August 8, 2024 No one was expecting what happened last week, but it seems everyone has explanations, none of them alike. Panic and hysteria were lingering around the edges. All the major US (and most global) indices dropped while crude oil and natural gas made a remarkable effort at trying to go […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[1],"tags":[],"class_list":["post-9302","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/9302","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/comments?post=9302"}],"version-history":[{"count":1,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/9302\/revisions"}],"predecessor-version":[{"id":9303,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/9302\/revisions\/9303"}],"wp:attachment":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/media?parent=9302"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/categories?post=9302"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/tags?post=9302"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}