OPEC cut the forecast for how much crude it will need to provide in 2015 to the lowest level in 12 years amid surging U.S. shale supplies and lower demand estimates. U.S. crude inventories rose to the highest seasonal level in weekly data that started in 1982, the Energy Information Administration said. Energy shares in the S&P 500 tumbled 3.3 percent to the lowest since April 2013, while oil and gas producers led the slide in European equities and Canadian shares.
“Oil dropping is creating uncertainty,” Paul Zemsky, the New York-based head of multi-asset strategies at Voya Investment Management LLC, which oversees $213 billion, said by phone. “People are trying to figure out what it means for other markets. The indirect impact should be beneficial as gasoline prices drop but that happens later. There’s fear before benefits here.”
A more nervous tone for global markets is very evident this week. What might the contributing factors be?
I would start with vertigo, since Wall Street and many other markets had a good run following the mid-October lows, oil exporters excepted. Primarily commodity producing countries have continued to underperform. Celebrations of the oil price rout by industrialised economies have now given way to concern in economies that are also significant producers of energy, including the USA.
We are reaching the point where lower oil prices are not just helping the US economy, but also causing pain because it is a huge producer of oil and gas, although not an exporter of these commodities. Curtailing US shale production, and slowing its spread to other countries, is of course one of Saudi Arabia’s main objectives in allowing oil prices to slump.
In a somewhat delayed market reaction, the strong US Dollar Index, now encountering some resistance near its 2008, 9 & 10 highs, is reducing overseas earnings for the USA’s many multinational corporations.
I also think that yearend profit taking is now a factor for Wall Street, where fund managers and other investors will have clear memories of the Jan 2014 shakeout. The temptation to at least deleverage and also lock in generally better than expected stock market gains is very strong, now that the yearend holidays are fast approaching. Additionally, many US equities are not cheap on historic valuation comparisons. Recent turbulence may persist for a while.Back to top