Jim Cramer: Why we're headed back to pre-Iran war oil prices and what it means

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Jim Cramer: Why we're headed back to pre-Iran war oil prices and what it means Published Tue, Jun 16 20262:06 PM EDTUpdated 48 Min Ago Alexa Lo Monaco@in/alexa-lomonaco/U.S. oil could soon be back to around pre-Iran war prices, Jim Cramer predicted Tuesday, as crude dropped to its lowest levels in three months. A sustained decline in oil prices would reverberate positively through the economy. "We're not going to $77, I think we're going below $70," Jim said on CNBC's " Squawk on the Street ." When pressed on the timing, Cramer responded: "One month." West Texas Intermediate crude, the American oil standard, dropped sharply again Tuesday, going below $76. WTI extended Monday's nearly 5% decline after the U.S. and Iran reached a memorandum of understanding to end their conflict. The deal is expected to reopen the Strait of Hormuz as early as this coming Friday, easing concerns about disruptions through one of the world's most important oil shipping routes. @CL.1 YTD mountain WTI crude YTD WTI finished around $67 on Friday, Feb. 27, the day before the Iran war started. It soared and settled above $71 on the first trading day on Monday, March 2. A week later, it briefly spiked above $119 to a four-year high. WTI quickly backed off those extreme levels, but remained elevated for months. With back-to-back declines on hopes for an Iran solution, following drops last Thursday and Friday, WTI's war-premium is down to about 13.4%. Cramer said the crude selloff reflects a supply picture that has shifted faster than many investors expected. Producers around the world ramped up output while prices were elevated, and Cramer does not expect them to quickly reverse course. "This collapse in oil shows me that the main thing that's happened is that nobody was really ready for it," he said. "People were just pumping like mad. ... I think that there's going to be a surprising amount of oil that comes to the market that nobody thought would be coming." The implications extend well beyond the energy market. The surge in oil prices was a major driver of May's hotter-than-expected inflation reports. Consumer prices rose 0.5% for the month, while wholesale inflation climbed 1.1% . Core inflation measures, which strip out volatile food and energy prices, were considerably more subdued, suggesting the recent acceleration was driven largely by the spike in crude following the Iran conflict. A continued decline in oil prices could help reverse that trend as lower energy costs tend to filter through the economy by reducing expenses for gasoline, transportation, and manufacturing. That dynamic would make new Federal Reserve Chairman Kevin Warsh 's job a little easier. He is presiding over his first meeting as Fed chief this week. The two-day June gathering concludes Wednesday afternoon. While the central bank is widely expected to leave interest rates unchanged , a continued drop in oil prices would strengthen the case that inflation is headed lower on its own, reducing the need for policymakers to consider rate hikes. President Donald Trump has made no secret of wanting lower rates and criticized Warsh's predecessor Jerome Powell at every turn for not cutting more aggressively. However, the conversation moved from possible rate cuts to possible rate hikes when oil prices spiked higher because of the war. If the war does indeed come to an end and oil keeps falling, Warsh might get breathing room for rate cuts down the line. On Monday, CNBC Senior Economics Writer Matt Peterson reported that his sources say that Trump trusts Warsh more than Powell and will give Warsh more room to pursue changes at the Fed, including lower rates over time, a smaller Fed balance sheet, and an overhaul of how the central bank measures inflation.More In AnalysisWells Fargo's asset cap removal has not been the silver bullet we expected. What to do nextMorgan Chittum2 hours agoJim Cramer debates his next move on a software stock on an 11 day losing streakNatasha Abellard3 hours agoJim Cramer's top 10 things to watch in the stock market Tuesday Jim CramerRead MoreSubscribe to CNBC PROSubscribe to Investing ClubLicensing & ReprintsCNBC CouncilsJoin the CNBC PanelDigital ProductsNews ReleasesClosed CaptioningCorrectionsAbout CNBCInternshipsSite MapCareersHelpContactNews TipsGot a confidential news tip? We want to hear from you.

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