By January 20, 2016 Read More →

Oil prices plunge and stocks hit lowest level since 2014

Oil prices down to 12-year lows

oil prices

The drop in oil prices has resulted in a drop in production, which one analyst says will allow prices to stabilize in the middle of 2016, and then start rising.  Statoil photo.

NEW YORK _ Another plunge in the price of crude oil prices plunge and stocks hit lowest level since 2014oil sent stocks sharply lower on Wednesday, bringing the market to its lowest level in nearly two years.

Energy companies were pummelled as the price of crude oil sank 7 per cent, threatening more damage to an industry that has already been stricken with bankruptcies, layoffs and other cutbacks.

The price of U.S. crude fell below $27 a barrel amid a global glut in oil supplies that seems to be getting worse. That’s the lowest price since May 2003 and a far cry from the $100 a barrel it fetched in the summer of 2014.

Overseas markets fared no better. Japan’s Nikkei index entered a bear market, down 20 per cent from its peak in June, and European benchmarks lost between 3 and 4 per cent.

Gold and U.S. government bonds, traditional safe havens, rose in value as investors shifted money out of stocks.

Keeping score: The Dow Jones industrial average lost 377 points, or 2.4 per cent, to 15,639 as of 1:55 p.m. Eastern time. It was down as much as 565 points earlier. The Standard & Poor’s 500 index fell 39 points, or 2.1 per cent, to 1,842. The Nasdaq composite index sank 54 points, or 1.2 per cent, to 4,423. The Dow and S&P 500 are down 10 per cent so far in January; the Nasdaq is down 12 per cent. The losses were widespread; all 10 of the S&P 500’s industrial sectors were in the red.

Oil down again: Oil prices had already fallen to 12-year lows this week, and the price of U.S. crude has dropped 29 per cent so far this year. Benchmark U.S. crude gave up $2.09, or 7.3 per cent, to $26.37 a barrel in New York. Brent crude, a benchmark for international oils, lost $1.12, or 3.9 per cent, to $27.64 barrel in London. Heating oil prices also sank 5 per cent to 86 cents a gallon.

Oil glut: James Liu, global market strategist for JPMorgan Funds, said the global economy remains relatively healthy and demand for oil hasn’t fallen off. But production is too high, so tremendous stockpiles have accumulated. While companies started shutting down drilling rigs in late 2014 after prices started to decline, production of oil didn’t change much.

“We’re starting to see production declines basically two years after rig count started to decline,” Liu said. He said production will keep falling and oil prices will stabilize in the middle of 2016, then start rising.

Energy keeps falling: Energy stocks were pelted. Devon Energy lost $2.36, or 10.1 per cent, to $21.12 and Murphy Oil fell $1.20, or 7.3 per cent, to $15.18. Chevron sank $4.42, or 5.4 per cent, to $77.09, the biggest loss in the Dow average. Financial stocks were also getting hit because banks could lose billions on loans to oil and gas companies. Bank of America lost 69 cents, or 4.8 per cent, to $13.55.

When will it end: Jack Ablin, chief investment officer of BMO Private Bank, said he thinks stocks will fall a bit further still. But he doesn’t expect a global collapse. Ablin said that for years, investors bought stocks without too much regard for risk. He said investors felt that if things ever got too bad, the Federal Reserve would help prop up the market.

“Investors were comfortable taking outsize risks, not because they had earnings to fall back on, but because they had the Fed to fall back on,” Ablin said. So stocks made huge gains in the years since the financial crisis while the U.S. economy churned out years of steady but unspectacular growth.

Big blues: Commercial tech giant IBM said its revenue fell for the 15th consecutive quarter. Sales fell about $170 million short of Wall Street forecasts. The stock shed $7.29, or 5.7 per cent, to $120.82.

Housing slump: Homebuilders fell after the Commerce Department said housing starts decreased in December. Still, residential construction ended 2015 at its healthiest level in eight years. Beazer Homes sank 82 cents, or 9.5 per cent, to $7.80 and PulteGroup fell 34 cents, or 2.2 per cent, to $15.33.

Spirit rises: Spirit Airlines said its profit margins will be stronger than expected and costs for aircraft rent, maintenance and other items will be smaller. Its shares gained $2.51, or 6.6 per cent, to $40.41. The plunge in energy prices has also helped airlines save money on jet fuel.

Bonds: U.S. government bond prices rose as traders shifted money into lower-risk investments. The yield on the 10-year Treasury note dropped to 1.97 per cent, its lowest level since last April, from 2.06 per cent a day earlier. That yield, which is a benchmark for setting interest rates on home mortgages and other kinds of loans, has fallen sharply since the beginning of the year. At the end of 2015 it stood at 2.30 per cent.

Metals: The price of gold rose $17.10, or 1.6 per cent, to $1,106.20. While gold is far below its prices from the financial crisis, it’s up 4 per cent in 2016. The price of silver added 3.9 cents to $14.16 an ounce, and is up almost 3 per cent for the year. Copper slipped 1.8 cents to $1.96 a pound and is down 8 per cent for the year.

Overseas: Japan’s Nikkei fell 3.7 per cent and is down more than 20 per cent from its June peak. Hong Kong’s Hang Seng retreated 3.8 per cent. The Shanghai Composite Index lost 1 per cent. In Europe, Germany’s DAX tumbled 2.8 per cent and France’s CAC-40 shed 3.5 per cent. Britain’s FTSE 100 sank 3.5 per cent.

Currencies: The US dollar fell to 116.67 yen from 117.44 yen late Tuesday. The euro fell to $1.0905 from $1.0923.


The Canadian Press

Posted in: Energy Financial

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