WTI crude has crashed 20% in just 10 days. Since the US-Iran war started on February 28, oil has been the main driver of everything in the markets.
The Strait of Hormuz carries about a fifth of the world's energy, and it was close to being completely shut. That pushed fuel, shipping, and food costs higher everywhere. US CPI jumped from 2.4% in January to 4.2% in May.
In October, oil rose another 15.2% on fears the war would get worse after the US midterm elections. But in November, peace talk headlines and the election results pushed oil down hard.
Here is what happened each day:
NOVEMBER 2:
Iran's President Pezeshkian said Supreme Leader Mojtaba Khamenei had given the government authority for peace talks. WTI fell 7.36%.
NOVEMBER 3:
Americans voted in the midterm elections, and Democrats won big.
NOVEMBER 4:
VP JD Vance said: "The reason we lost is the war." Markets saw this as a bigger reason for Trump to end the war. WTI fell 8.3%. The S&P 500 rose 1.6% to 7,688, adding about $1.1 trillion.
NOVEMBER 5:
Investors dumped AI and data center stocks after the Democratic sweep. The S&P 500 fell 4.36% to 7,353, wiping out about $3 trillion. Nasdaq 100 fell 6.36%, and Nvidia fell 9.26%.
NOVEMBER 6:
Markets stabilized. S&P 500 rose 0.3%, and Nasdaq 100 rose 1.4%.
NOVEMBER 9:
Trump said new strikes on Iran were "highly unlikely" if talks make progress. Qatar's Prime Minister brought an Iranian plan to reopen Hormuz to the White House. WTI fell 4.38%. The S&P 500 pumped 2.35% to 7,549, its best day in 7 months, adding about $2 trillion. Nasdaq 100 rose 3.40%.
Supply is also coming back. Gulf oil exports are back to pre-war levels, and JPMorgan estimates a global surplus of 1.4 million barrels per day.
This is very good news for markets. Gasoline futures are already down 17% in a month. Cheaper energy means inflation can start cooling. Cooler inflation means less pressure on the Fed.
Even if today's CPI data comes in hot, it mostly reflects the high oil prices from October. Energy has been the main driver of inflation this year.
If oil keeps crashing, inflation could cool fast in the coming months, and the Fed's whole rate hike cycle could end much sooner than expected.
If oil keeps falling, the biggest problem for stocks, Bitcoin, and crypto this year starts to go away.
