Brent crude drops to two-month low, slicing through 200-day moving average

Crude oil is sinking today, extending the decline that followed the US midterms.

The market perceives that the White House is desperate to find an exit from an unpopular war, hoping to move beyond a decision that triggered a jump in oil prices and troublesome inflation.

This is easier said than done, yet a report says JD Vance will travel to the Middle East next week for direct negotiations with Iran. Such meetings typically occur only when the broad strokes of an agreement are already sketched out.

Admittedly, there have been many false reports about Iran and the sourcing on the Vance story is questionable, but a stream of recent leaks points to genuine progress. The price action in oil is undeniable.

Brent crude has fallen $5.18 to $93.10 on the day, breaching the 200-day moving average, a level that had held last week.

Today's decline brings Brent to its cheapest level since early September.

The 200-day moving average has not been a key level over the past two months, but the pace of the drop from $118 to $93 is striking and significant, for oil and for the macroeconomic picture.

In part as a response, the S&P 500 has risen 1.2% today to 7466. Trump ultimately judges his performance by the stock market, and the best action he can take now to bolster it is to end the war and give the Fed cause to halt rate increases. Currently, the market assigns an 81% probability to a December rate hike and expects 50 bps of increases over the next year.

The swift move in oil reflects positioning over actual demand, leaving it vulnerable to a bounce. If the war sees a resolution, I think oil could decline below $80 and then hover around the $80-85 level as inventories are rebuilt.