Brent North Sea and U.S. crude futures went into free fall today by as much as 6% before recovering a small bit of their losses. The drop seems to have been in belated reaction to OPEC’s inability at a policy meeting on Friday to conclude an agreement to lower production and thereby push prices higher, or at least prevent a further decline.
Breaking with a decades-long precedent, OPEC oil ministers dropped any reference to the group's output ceiling. That seems to highlight disagreement among cartel members about how to deal with Iranian oil once Western sanctions are lifted, an imminent change.
"We're in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share," said Chris Jarvis at Caprock Risk Management, an energy consulting firm in Frederick, Maryland.
"Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI."
Also boosting the greenback are an expansion of qualitative easing moves by the European Central Bank, which also sent basic euro interest rates farther into negative territory.
Energy woes hit the Dow and S&P 500, which in turn dragged down the NASDAQ. All the main New York indexes were down just a few tenths below one full percent.
Earlier in the day, Asia was mixed to moderately higher, with the Nikkei leading the parade. Hong Kong was the only loser. Europe, too, was mixed to higher. The DAX was strongest, rising 1.25% on the day.
The fact should be faced. Fundamentally speaking, oil prices swerving hither and yon are beginning to have a very negative effect on equities.
It is not entirely necessary for crude prices to actually rise. All they have to do is stay put so traders and investors can figure out their patterns. Looking at crude charts is like looking at the EKG of an amphetamine user. Talk about jumpy…
Start with machinery, industrial construction and extraction engineering and finish with transportation and vehicle manufacturing and you have the simple snapshot of how low prices unsettle the stock markets.
Dollar strength is accounting for about 40% of the overall $14+ loss in gold, which is now down from its three-week highs.
Other components of the precious metals complex are being buffeted, as well. Platinum took the brunt of investor dissatisfaction with high-end metals, although palladium was not far behind.
Platinum fell about 3.00%, palladium around 2.65%. Even normally sedate silver was down 2.00%.
Wishing you as always, good trading,