U.S. stocks tumbled on Tuesday, with energy-related equities dropping on lower oil prices and large banks falling on worries over bad energy loans.
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Nobody saw the shale-oil boom coming, and it has changed the market, said Neil Atkinson, who edited the IEA report released Monday.
Stocks have closely tracked oil prices this year as investors fret about the health of the global economy.
In opening trade on Tuesday, the Dow Jones industrial average was down 61.74 points, or 0.37 per cent, at 16,558.92.
After posting its strongest week of the year last week, the S&P 500 had climbed another 1.5 per cent on Monday.
The expiring March crude futures jumped 6.2%, to settle at US$31.48 a barrel, after Baker Hughes reported a decline in oil rigs on Friday. The Standard & Poor’s 500 index lost 19 points, or 1 percent, to 1,927 and the Nasdaq composite fell 50 points, or 1.1 percent, to 4,521. Its shares dropped 4.2 per cent. The market has failed to sustain several rallies in the past two months, with the S&P and the Dow closing higher for three straight days only once this year.
Saudi Arabia’s oil minister batted down speculation over possible production cuts, which weighed heavily on crude oil today.
OIL: Benchmark U.S. crude lost 62 cents or 1.9 percent at $32.77 per barrel in NY.
A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003.
“The markets are really anxious that we are missing something here, that the global slowdown may be more significant than we are recognizing and that slowdown could be causing oil prices to drop, and commodities prices in general”, said Tracie McMillion, head of asset allocation at Wells Fargo Private Bank in Winston-Salem, North Carolina.
The report notes that while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies – at least in the near term.
USA crude prices settled up more than 6 per cent but still remained around decade lows, while prices of industrial metals such as copper and zinc rose as investors anxious about potential shortages.
“Expectations are that we will see more fiscal stimulus”, she said. A survey of German business sentiment published on Tuesday fell for a third straight month, following weak eurozone purchasing managers surveys on Monday.
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Banking stocks have also shown a significant move to the downside, dragging the Dow Jones Banks Index down by 2.9%. Japan’s Nikkei Stock Average closed down 0.4% as the yen gained, hurting shares of exporters, while Australia’s S&P ASX 200 fell 0.4%. The dollar fell to 112.06 yen from 112.83 yen while the euro weakened to $1.1009 from $1.1026.
