US Stocks Slip Due to the Continuing Slump of Crude Oil

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Oil slumps to seven-month low; European stocks slip

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Market Snapshot

Dow overcomes early stumble to end 470 points higher as Wall Street clings to hope for major oil companies

William Watts and

Andrea Riquier

U.S. jobless claims soar to 6.6 mln in latest week

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Stock benchmarks on Thursday finished near the highs of the session, as investors appeared to focus on hope that a detente between some of the biggest oil producers on the planet might be achieved to substantially curb oil production and stabilize battered prices.

A tweet from President Donald Trump on the possibility of a big reduction helped to overshadow data that showed U.S. weekly jobless claims soared to a record.

However, Thursday’s action was marked by an opening swing lower as investors weighed bad news on the public health front and the economy.

What are major indexes doing?

The Dow Jones Industrial Average DJIA, +2.24% closed up 469.93 points, or 2.2%, at 21,413.44, near its intraday peak at 21,477.77, but the blue-chip benchmark touched a low for the day at 20,735.02. Meanwhile, the S&P 500 SPX, +2.04% ended 56.40 points, or 2.28%, higher at 2,526.90, while the Nasdaq Composite Index COMP, +1.74% gained 126.73 points, or 1.72%, to close at 7,487.31.

What’s driving the market?

Oil and oil-related stocks were the main focus of the action on Thursday, briefly superseding worries about the pandemic and woeful data that highlighted the economic pain exerted by measures to mitigate the spread of the deadly virus.

Stocks surged midmorning Thursday after Trump tweeted that he had been in contact with Saudi Arabian Crown Prince Mohammed bin Salman and that he expected the Saudis and Russia to cut production by about 10 million barrels a day.

However, commodity experts raised doubts that such a reduction, which Trump at one point said could top 15 million barrels a day, was practical.

“It’s physically impossible for Saudi Arabia and Russia to get 10 million barrels a day off the market—they’d burst their onshore storage and fill every ship in sight,” Edward Marshall, a commodities trader at Global Risk, was quoted as saying by The Wall Street Journal.

The price war, which started in March, pushed crude oil to lose nearly two-thirds of its value in the first quarter, and has slammed the energy sector. The U.S. benchmark CL.1, +3.47% in March slumped to an 18-year low and dipped intraday below $20 a barrel. Shares of Exxon Mobil Corp. XOM, +2.52% and Chevron Corp. CVX, +3.18% were both up sharply after the announcement but remain roughly 40% lower for the year to date.

Trump’s tweet also comes a day before the president is scheduled to meet with U.S. oil-company executives on Friday at the White House to discuss possible aid for the industry amid the plummeting oil prices. Exxon Chief Executive Darren Woods, Chevron’s Chief Executive Mike Wirth, Occidental Petroleum’s OXY, +4.48% Chief Executive Vicki Hollub, and Continental Resources CLR, +7.70% Chief Executive Harold Hamm, are expected to be in attendance, according to The Wall Street Journal.

Moves for the market also come as investors confronted grim economic news. Some 6.65 million Americans filed for first-time jobless benefits, doubling the previous week’s record rise of 3.28 million the previous week. Previously, the record first-time claims number was below 700,000.

In a separate report, the government also said that the U.S. trade deficit narrowed to $39.9 billion in February from $45.5 billion in January.

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Countless businesses across the country have been forced to close or scale back hours, throwing masses of people out of work and triggering an unprecedented back-to-back surge in initial jobless claims.

In just the past two weeks alone, new claims have easily exceeded the peak number of people who collected benefits during the 2007-09 recession. At the end of the last recession, 6.6 million people drew benefits, a record at that time.

“The economy is in bad shape and doubts are growing that the recent fiscal rescue package to help businesses might not be enough to keep people on their payroll,” said Edward Moya of brokerage Oanda. “It is unfortunate how bad these numbers are getting, and no one will be surprised if we see a few more terrible readings over the next few weeks. America needs the economy to reopen, but not at the cost of lives.”

What are other markets doing?

Oil soared, with the price of a barrel of West Texas Intermediate Crude CLK20, +3.47% for May delivery rose $5.01, or 24.7%, to settle at $25.32 a barrel.

Government bond yields ticked down, but ended above earlier lows, with the benchmark U.S. 10-year Treasury note TMUBMUSD10Y, 0.748% down by about 0.6 basis point to 0.624%.

Gold charted another gain, with the precious metal for June delivery GCM20, +0.23% jumping up by $46.30, or 2.9%, to settle at $1,637.70 an ounce.

The dollar traded 0.3% higher compared with a basket of currency trading partners, as gauged by the ICE U.S. Dollar index DXY, +0.14% .

Which companies are in focus?

Walgreens Boots Alliance Inc. WBA, +1.02% on Thursday reported quarterly results that beat expectations but said it would hold off on issuing full-year guidance. Shares closed down 6.3% on Thursday.

Boeing BA, +6.60% is offering buyout and early retirement packages to employees as it works to combat the impact on its business of the coronavirus that causes COVID-19 that has grounded airlines around the world and decreased demand for new planes. Shares of the Dow component finished down 5.7%.

General Electric Co. GE, +2.63% shares closed 2% lower after investment bank UBS cut the conglomerate’s price target.

U.S. Bancorp USB, +2.80% shares rose 2,3% after a price-target cut from Deutsche Bank.

Shares of Shake Shack Inc. SHAK, +9.80% added 1.1% after the company said same-store sales fell by nearly a third in March compared with a year ago.

CarMax Inc. KMX, +4.98% shares fell 4.1% as the company said it had beat expectations in the quarter, before the coronavirus hit in March.

OIL FUTURES: Crude slumps on OPEC+ meeting delay, lack of US commitment

Ministers eye 10 million b/d output cut

Trump threatens oil import tariffs

Russia still supports OPEC+ talks

New York — Oil futures fell Sunday evening following news that an emergency OPEC+ meeting planned for Monday was delayed because of a clash between Saudi Arabia and Russia, and a lack of commitment from the US on possible output cuts.

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At 2206 GMT, NYMEX front-month crude futures were trading around $25.85/b, down $2.49 from Friday, while ICE front-month Brent was trading around $31.46/b, down $2.65.

The meeting, now scheduled for Thursday, was called to discuss production cuts in order to bolster crude prices, which have tumbled as the coronavirus spread has slashed demand.

Ministers had been considering a 10 million b/d cut, contingent on the US and other countries, such as Canada and Brazil, joining in. US President Donald Trump initially said last week he expected a production cut agreement of 10 million-15 million b/d.

The planned meeting, and Trump’s comments, rallied crude markets late last week, with WTI at Midland, Texas assessed by S&P Global Platts at $23.89/b Friday, up $8.63/b from Wednesday.

However, Trump said late Friday after meeting with the heads of several US oil companies that he was not inclined to force them into mandatory output cuts.

Some shale operators, facing layoffs and potential bankruptcy, had urged the president to broker a deal that would bring them relief, but other oil companies opposed joining forces with OPEC.

“These are great companies and they’ll figure it out,” Trump said in a press briefing. “It’s a free market.”

On Saturday, Trump threatened oil import tariffs, claimed Russia, Saudi Arabia and other OPEC nations would be “destroyed” if they did not reach a new supply cut deal, and leveled his harshest criticism of OPEC since he was elected in 2020.

Trump is likely to continue to talk with the leaders of Saudi Arabia, Russia and other oil-producing countries about the next possible steps as the OPEC+ meeting nears.

Russia still supports talks with other leading oil producers on stabilizing the market, Kremlin spokesman Dmitry Peskov said Sunday.

“Russia was not a supporter of ending the OPEC+ deal. President Putin and the Russian side are overall inclined towards a constructive negotiation process, there is no alternative for stabilizing the international energy market,” Peskov said during an interview aired on the Russia 1 TV Channel.

In recent days, officials from Russia and Saudi Arabia have criticized each other. On Friday Russian President Vladimir Putin said that Saudi Arabia is boosting production to target US shale oil companies, while Russia is not interested in taking US market share.

Saudi officials said the comments were “categorically false and contrary to fact” and that Saudi Arabia is a major investor in the US energy sector.

Even with OPEC and its allies returning to the table Thursday, It remains to be seen how a 10 million b/d crude production cut will be realized without US producers cutting.

“The matter is complicated by the fact that US production has not yet fallen significantly, despite dramatic capex cuts, which will only affect significant declines in 2021,” S&P Global Platts Analytics said. “This raises questions over how and when the US would cut, whether these would be economic (such as the 800,000 b/d of stripper wells in our forecast) or voluntary, with the latter further complicated by the legal independence of US producers.”

Norway’s energy minister Saturday said her country would consider cutting output. Norway produced 2.1 million b/d of oil in February, roughly between 2% and 3% of global production.

Crude Oil Weekly Forecast: Deal or No Deal – Oil Prices Continue to Slump

Crude Oil Week Ahead Forecast: Neutral

  • OPEC proposal of 1.5 million barrels per day production cut fails to materialize
  • Russia are currently refusing to back any further output cuts.

Crude Oil Roiled by Coronavirus Epidemic

A game of brinkmanship between OPEC and Russia over new output cuts failed to materialize today . OPEC had proposed cutting oil production by 1.5 million barrels per day until the end of the year, yet Russia refused to back the cuts, instead pushing for an extension of the current level of production. OPEC’s proposal needs to have the backing on non-OPEC producers, including Russia. The breakdown in talks lead to oil declining over 10 percent Friday, the largest drop since 2020.

The continued spread of coronavirus is hammering demand for oil and this is unlikely to change in the months ahead. Chinese data showed economic activity slumped in January as businesses and factories shuttered and the economic malaise is spreading with global supply chains creaking and breaking, dragging economies across the world close to, or into, recession. A raft of central banks have either cut interest rates in the past week or are considering cuts before or at their next policy meetings in an effort to boost growth, but financial markets are ignoring this continued liquidity flush and continue to spiral lower.

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