The Dow tumbled 546 points, or 2.1%, on Thursday following another heavy session of selling The index briefly turned positive during morning trading before collapsing down 699 points on its lows. The Dow has shed 1,378 points over the past two days which is -5.2% in that period and it’s down -7.2% from its all-time highs. The S&P has dropped 5.2% in the last 2 days as well but is only down 7% from its all-time high. The NASDAQ briefly fell into a correction territory, down 10% from its previous highs, but rallied to only close -1.3%. The VIX volatility index reached its highest level since February. Equities dominated the news cycle, but quietly the background, crude oil has been almost as weak.
Correction in Crude
If you believe the old standard that a bull market correction is an 8%-10% fall from recent high, then crude oil went into a correction. WTI hit a recent high of $76.90 hit on October 3rd, then proceeded to fall down through $71.00 to a low of $70.99 late Thursday which put it briefly at -8.3%. Several factors contributed to the fall in price such as seasonal weakness as well as inventory builds in both the API and EIA reports. Perceived weakness in future demand based off not only the trade war but a potential economic slowdown caused by higher rates and a weaker stock market. Refineries are only operating at 88% of capacity (in part because of Hurricane Michael) and still we have gasoline supplies 7% higher than their 5-year average for this time of year. With the summer driving season all but over, working through that inventory may take some time. However, the most influential factor Thursday that pushed crude -3% for the day on its lows was the admission by OPEC that both the cartel and Russia had increased production in September to prepare for the Iran sanctions taking crude off the market. In fact, Russia hit a new post-Soviet record for production and the Saudi’s are in talks with Kuwait to open a jointly owned dormant oil field in the neutral zone between the two countries. Whether the pressure from the U.S. got the cartel or they felt it was in their best interests to push prices lower, it looks like the correction in crude may be replaced soon…by a bear market.