Investorideas.com
Search  Follow Investorideas on Twitter  Investorideas is on Facebook  Investorideas is on Google Plus  Investorideas is on Youtube  Investorideas is on Pinterest  Investorideas is on tumblr  Investorideas is on LinkedIn  Investorideas RSS 


Investorideas podcasts on iTunes, Google Play Music and iHeart.com    Bitcoin and Blockchain Stocks

 

Join Investor Ideas Members to access the Renewable Energy stocks directory, water stocks, biotech stocks, defense stocks directories and the Insiders Corner

Oil Prices Ravaged By Financial Turmoil

By Nick Cunningham for Oilprice.com

 

February 7, 2018 (Investorideas.com Newswire) Oil prices fell back suddenly over the last few trading sessions, dragged down by some forces beyond the oil market.

The steady decline of the U.S. dollar has helped drive up crude prices for weeks, but that came to an abrupt halt last week. A rebound for the greenback led to a steep decline in oil prices on Friday.

At the same time, sudden turmoil in the broader financial system also bled over into the oil market. Volatility in the stock market flared up on Friday, sparking the sharpest single-day upheaval in years.

The Dow Jones Industrial Average fell more than 600 points, only the ninth time in history that a fall of that magnitude has occurred. "The stock market and interest rates can really affect oil a lot," Mark Waggoner, president of Excel Futures, told The Wall Street Journal. "It's spilling over into the energy markets and causing these ripple effects."

The stronger-than-expected job growth and wage increases fueled speculation that the Fed would tighten interest rates more than previously thought. Bond yields continue to rise, undercutting equities. Signs of higher inflation also led to speculation of interest rate hikes from the central bank. The dollar gained 0.7 percent on Friday.

That led to a selloff for Brent and WTI. And if the turmoil continues, the trouble for oil benchmarks will also linger. "The potential is present for a big move lower should fear return to the stock market and spark liquidations across the board," analysts at TAC Energy said Friday, according to The Wall Street Journal. "The cross-asset class correlations have returned over the past several weeks."

The problem for oil is that both oil prices and broader stock indices are seen as overvalued by some analysts. Hedge funds and other money managers have piled into bullish bets on crude, leaving positioning in the futures market overextended.

"The price slide is due to a general worsening of sentiment. Stock markets around the world are under pressure, which confirms that the steep price rise in the preceding weeks was for the most part sentiment-driven," Commerzbank wrote in a note. "There is only limited fundamental justification for the high price level … It is therefore conceivable that the correction in oil prices will continue."

An unraveling of positions from major investors could expose WTI and Brent to sudden losses. That correction tends to occur when a spate of news goes against existing sentiment. The broader financial system is finally facing some questions after a remarkable bull run, which is magnifying the danger for crude benchmark prices.

"A global selloff in risk assets is gathering pace and sending the energy complex lower amid a sea of red," PVM Oil Associates Ltd. analysts Tamas Varga and Stephen Brennock wrote in a report. "The risk-off environment throughout the energy complex comes as U.S. drillers added oil rigs for a second consecutive week."

"You're starting to see a whiff of what I call the GMO trade — get me out," Bill O'Grady, chief market strategist at Confluence Investment Management, told The Wall Street Journal.

It isn't all sentiment trading, however. We now have several catalysts that could provoke a liquidation of bullish bets: inventories rose last week for the first time in months, the rig count continues to rise and U.S. production is breaking records. Seasonally, oil demand is at a lull, pushing up inventories. These trends were expected, but still present downside risk to what is looking like an overvalued oil price.

Perhaps most importantly, supply growth from the Permian looms large over oil prices. Ed Morse, global head of commodities research at Citigroup, told The Wall Street Journal that U.S. shale could wreck the oil market once again. He argues that the industry is ramping up production, and that assurances over a more cautious drilling approach from shale executives should not be trusted. As production increases continue unabated, oil prices could collapse again. "2018 could turn out to look a lot like 2014 - a year that started with very high prices and ended at very low prices," he said.

Link to original article: https://oilprice.com/Energy/Oil-Prices/Oil-Prices-Ravaged-By-Financial-Turmoil.html


OilandGasStockNews.com- investing ideas in oil and gas stocks

Like Oil and Gas Stocks? View our Oil and Gas Stocks Directory

Get News Alerts on Energy Stocks


More Info:

Investorideas.com Newswire

This news is published on the Investorideas.com Newswire - a global digital news source for investors and business leaders

Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investment involves risk and possible loss of investment. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Contact each company directly regarding content and press release questions. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. More disclaimer info: http://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release on the Investorideas.com newswire http://www.investorideas.com/News-Upload/

Additional info regarding BC Residents and global Investors: Effective September 15 2008 - all BC investors should review all OTC and Pink sheet listed companies for adherence in new disclosure filings and filing appropriate documents with Sedar. Read for more info: http://www.bcsc.bc.ca/release.aspx?id=6894. Global investors must adhere to regulations of each country.



Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max