Crude oil is in freefall, in a bear market after a drop of more than 20% from its recent September 2013 high, a downward spiral that foreshadows global economic turbulence ahead. West Texas crude is down another 1.4% today to $84.54 a barrel, leaving it down 23.5% from its Sept. 6, 2013 high of $110.53, according to data from Bespoke Investment Group. Oil is trading at prices last seen in 2012.
The sharp drop in oil prices is good for consumers, as it lowers prices at the gas pump, but it also has ominous implications as falling oil prices often are signaling that economic conditions are worsening. Oil prices have come down sharply amid a sharp slowdown in economic activity in the eurozone and slowing growth in China and other emerging markets.
The losses in the oil pits have been far more painful than in the stock market, where the benchmark Standard & Poor’s 500-stock index enters the day down 4.1% from its September peak . It closed last night at 1928.21 after a 2% selloff. The stock market is also a so-called leading indicator pointing to trouble ahead.
“I have to call into question the economy because the oil and stock market is a great forecaster,” says Gary Kaltbaum, president of Kaltbaum Capital Management.. “And to see commodities crash normally means demand will fall off a cliff.”