Oil prices, energy stocks slump after Iran dismisses production freeze

Oil prices drop Monday morning

Oil prices
Oil prices slumped on Monday morning, dragging down energy company stocks.  Repsol photo.

NEW YORK _ U.S. markets are slightly higher Monday as lower oil and gas prices are dragging down energy companies while hotels and other travel-related companies are rising after a consortium led by China’s Anbang Insurance Group offered to buy Starwood Hotels.

KEEPING SCORE: The Dow Jones industrial average added 36 points, or 0.2 per cent, to 17,248 as of 2:30 p.m. Eastern time. The Standard & Poor’s 500 index lost one point to 2,021. The Nasdaq composite index picked up five points, or 0.1 per cent, to 4,753. Stocks have risen each of the last four weeks and the S&P 500 is up eight days out of the last nine.

LOW ENERGY: Oil prices slumped after Iran’s oil minister dismissed the idea of a freeze in production over the weekend, saying Iran will keep increasing output until it reaches four million barrels per day.

U.S. benchmark crude fell $1.32, or 3.4 per cent, to close at $37.06 a barrel in New York. Brent crude, the global benchmark, lost 88 cents, or 2.2 per cent, to $39.51 a barrel in London. Wholesale gasoline and heating oil prices both slipped about 2 per cent while natural gas prices were little changed.

Southwestern Energy lost 51 cents, or 6.4 per cent, to $7.49 and Chesapeake Energy gave up 29 cents, or 6.1 per cent, to $4.42. Financial stocks also fell. They are the worst performing sector of the S&P 500 this year, in part because investors are worried that struggling energy companies will be unable to pay back loans.

BOOK A ROOM: Starwood Hotels jumped after the consortium offered to buy the hotel chain for $14 billion. Last year Marriott International agreed to buy Starwood for $12.2 billion. Starwood said it will examine the offer.

Anbang bought New York’s Waldorf Astoria for almost $2 billion in 2014 and on Saturday it agreed to buy Strategic Hotels & Resorts for $6.5 billion. It’s offering $76 per share for Starwood, which rose $5.50, or 7.8 per cent, to $75.92.

Marriott stock rose $2.13, or 3.1 per cent, to $71.02. It will get a $400 million payment if Starwood backs out of their agreement.

Travelling MUSIC: The news lifted other travel-related companies. TripAdvisor gained $2.92, or 4.6 per cent, to $66.62 and Expedia rose $1.26, or 1.1 per cent, to $116.19.

C. Patrick Scholes, analyst for SunTrust Robinson Humphrey, said investors in Expedia and TripAdvisor are hoping Starwood will be sold to Anbang instead of competitor Marriott. He said if Marriott and Starwood were to combine, they would have more power to negotiate lower commissions with the online travel agencies. “If there’s no deal, that strength and bargaining power is taken away,” he said.

Host Hotels also picked up 23 cents, or 1.4 per cent, to $16.86. Scholes said Anbang’s offer suggests that foreign buyers are still interested in U.S. hotel companies.

MATERIAL WEAKNESS: The worst-performing stocks Monday afternoon were materials companies. Cleaning, food-safety and pest-control services company Ecolab fell $2.69, or 2.5 per cent, to $103.67 and chemicals maker LyondellBasell Industries shed $2.13, or 2.4 per cent, to $85.35. Granite, limestone, sand and gravel company Martin Marietta Materials lost $3.35, or 2.1 per cent, to $153.23.

GROCERY SHOPPING: The Fresh Market jumped $5.45, or 23.7 per cent, to $28.44 after private equity firm Apollo Global said it will buy the grocery store chain for $1.3 billion, or $28.50 per share.

OVERSEAS: Stocks in Europe rose after the eurozone had its biggest monthly increase in industrial production since 2009. Germany’s DAX rose 1.6 per cent. France’s CAC 40 added 0.3 per cent while Britain’s FTSE 100 gained 0.6 per cent.

Chinese stocks rose after the chief of the China Securities Regulatory Commission told a press conference over the weekend that it’s too early to talk about winding back official support measures for the markets, according to the official Xinhua news agency. That suggests the government will continue to support Chinese equities.

Meanwhile Japan reported a jump in private sector machinery orders, a sign that capital spending could improve this year. Japan’s benchmark Nikkei 225 index rose 1.7 per cent and South Korea’s Kospi was little changed. Hong Kong’s Hang Seng added 1.2 per cent and the Shanghai Composite Index in mainland China gained 1.8 per cent.

HIGHER: Drug developer GW Pharmaceuticals more than doubled after it reported positive results from a late-stage study of its drug Epidiolex, an experimental seizure disorder treatment derived from a marijuana extract.

GW Pharmaceuticals stock added $50.44, or 131 per cent, to $88.90. Zynerba Pharmaceuticals, which is studying drug based on synthetic compounds derived from cannabis, climbed $10.46, or 124 per cent, to $18.90.

CENTRAL BANKS: On Wednesday the Federal Reserve will conclude it latest meeting. Investors don’t expect the Fed to raise interest rates, but they will look closely at its comments on the state of the U.S. and global economies to get clues about possible moves in the future. In December the Fed raised interest rates for the first time in almost a decade, but it left them unchanged in January.

The Bank of Japan and the Bank of England are also due to meet this week though analysts don’t expect any major policy changes. Last week the European Central Bank followed through last week on its promise to provide more economic stimulus.

METALS: The price of gold fell $14.30, or 1.1 per cent, to $1,245.10 an ounce. Silver fell 8.4 cents to $15.52 an ounce. Copper was little changed at $2.24 a pound.

BONDS, CURRENCIES: Bond prices rose. The yield on the 10-year Treasury note slipped to 1.95 per cent from 1.98 per cent. The euro declined to $1.1086 from $1.1157 late Friday. The dollar edged up to 113.79 yen from 113.70 yen.

The Canadian Press