Market mayhem, or maybe just a correction, is shattering nerves and causing crazy volatility. We saw the biggest jump in the VIX volatility index or fear index in history. Of course, when you’re driven by fear and algos it’s hard to find stability. Oil is being driven down by fear and not reality as demand so far is exceptional. Unless fear and mayhem take the focus of current reality, oil will come back big as long as we see stability in stocks.

The oil market, like the stock market, is worried that too much of a good thing can be a bad thing. Strong economic data has raised the fear of inflation and the fears of rising rates and less cooperate profits ahead.

OPEC is worried that they may be a victim of their own success. The cartel’s historic compliance has led to a very tight global oil market that may exasperate economic worries that have suddenly appeared in global markets. Maybe the market is signaling rough times ahead or maybe it’s just signaling a market correction. We believe that this is a much-needed correction and is healthy for long-term economic growth. The economic backdrop to this sell-off is rising wages, strong manufacturing, and non-manufacturing data. Strong growth.

Oil traders are expecting to see an increase in crude supply even as we see a big draw in Cushing Oklahoma yet again. Strong global distillate demand will keep the ultra-low sulfur diesel well supported. Use market weakness to establish more long-term call positions as the global demand versus supply curve should continue to come in.