Kilduff: Oil’s ‘Flash’ Warning to All the Markets


The crude oil market signaled a warning to all the markets with its precipitous decline, yesterday. (Read More:Oil Slips Below $114, Extending Slide)

The move down was sudden and violent, which sent participants scrambling for a rationale. (Track Oil Prices Here)

Rumors of an announced or leaked SPR release decision abounded, as did rumors of an algorithmic trade gone bad.

There was a tremendous volume spike during the selling, which, in the equity world, would have made it a flash crash. But, as we discuss further and more forcefully below, prices have not recovered those “flash-crash” losses and are, in fact, extending. (Read More: Rapid Plunge in Oil Futures Leaves Traders Guessing)

We have made the point that the actions by the Fedand the ECB are in response to a global economy that is floundering not flourishing. The equity and other markets have rallied due to all of the announced and expected easing measures, predicated on a belief that consumption and economic growth will necessarily follow due to extremely low interest rates and/or the positive effect of inflation on asset values.

Still, it was an odd epiphany that struck the energy market in a moment.

Prices seemed to collapse of their own weight, due to a buyer’s strike. The demand outlook for next year has deteriorated markedly, and just this morning FedEx has reduced its outlook for the all-important Holiday quarter.

The Fed has done all that it can, but the fiscal side needs to come through, and we won’t get that until after the November election, possibly well after. (Read More: How Fed's 'Shock and Awe' Will Affect Investors: O'Neill)

Earnings have only been good because of cost containment efforts, revenues have missed in many cases.

Beware the same epiphany for the equity markets even though the effects of the Fed easing are more broadly absorbed in that patch of the financial garden.

John P. Kilduff is Partner at Again Capital LLC Ltd. He's also a CNBC contributor.