Market commentary: Oil plunge continues to impact markets

The U.S. benchmark crude price has fallen more than $60 since June to below $45 yesterday. Oil is seeking a “new equilibrium” as the Organization of Petroleum Exporting Countries (OPEC) abandons its role of keeping supply and demand aligned. Prices are poised to drop further, testing the ability of U.S. shale drillers to keep pumping. WTI fell as low as $44.20 a barrel on the New York Mercantile Exchange yesterday.

The U.S. benchmark has dropped 14 percent this month, extending a 46 percent plunge last year that was the worst since the 2008 financial crisis.

OPEC is trying to maintain its share of the global oil market against the rise of U.S. output. United Arab Emirates Energy Minister Suhail Al Mazrouei reiterated yesterday that shale producers will capitulate before OPEC to lower prices, the latest in more than a dozen comments from Gulf members aimed at hastening oil’s slide and lowering non-OPEC supply.

The U.S. is pumping oil at the fastest pace in more than three decades, helped by a drilling boom that’s unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. U.S. output expanded to 9.14 million barrels a day in the week ended Dec. 12, the most since at least 1983, according to the U.S. Energy Information Administration.

How are markets performing in this environment?

Treasuries rose yesterday, pushing 30-year yields toward a record low and sending 10-year yields to the least since May 2013, as falling commodity prices cut the outlook for inflation.

U.S. long bonds have surged amid a 2015 rally in bonds around the world, returning 5.6 percent, Bank of America Merrill Lynch data show. The securities are on track for their biggest monthly gain in a year. The U.S. is scheduled to sell $13 billion of 30-year debt today. Plunging oil prices suggest inflation will hold in check.

Japan’s 10-year bond yield fell to an unprecedented 0.25 percent. Australia’s extended its decline to an all-time low of 2.57 percent.

The Stoxx Europe 600 Index dropped 1.2 percent to 340.67 today. Energy shares and basic-resources companies posted the biggest losses among all 19 industry groups. Rio Tinto Group and BHP Billiton Ltd, the world’s largest mining companies, fell at least 4.5 percent while BP Plc and Royal Dutch Shell Plc slipped more than 1 percent.

The Standard & Poor’s 500 Index (SPX) staged one the most volatile sessions in three years, rising as much as 1.4 percent and falling 1 percent as the fluctuating price of oil rattles investors. US stocks ended the day marginally down, the S&P 500 falling 0.26 percent to 2,023.03. The index’s futures dropped a further 0.5 percent today.

Signals from energy and bond markets rattled stocks for an eighth day as the Chicago Board Options Exchange Volatility Index (VIX) climbed above 20 and the Dow Jones Industrial Average pared a loss that reached 143 points.

Shares in the $1.4 billion Market Vectors Russia ETF ended unchanged at $14.77 after dropping as much as 2.7 percent. Asset managers pulled $36.9 million from the fund on Monday, the biggest outflow since mid-December, data compiled by Bloomberg show. The ruble tumbled 3.2 percent against the dollar.

In the commodities arena, copper tumbled as much as 8.7 percent, the most since July 2009, before paring some losses. Nickel declined to an 11-month low.

The World Bank yesterday cut its forecast for global economic growth this year to 3 percent from a projection of 3.4 percent in June. The Washington-based lender upgraded its forecast for U.S. growth to 3.2 percent from 3 percent.

The Fed is scheduled to issue its Beige Book business survey today. Government data will show retail sales and the cost of imported goods declined in December, based on Bloomberg surveys of economists.

This article was issued by Mr. Simon Psaila, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. 

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