The stock markets in the United States continued its downward trend as the price of crude oil extended a decline below $48 per barrel. There are speculations that the oil inventories in the country will expand, thus increasing the oversupply globally causing the decline of oil prices to a five-year low.
Phil Flynn, senior market analyst at the Price Futures Group said, “Supplies may continue to rise here in the U.S. The supply glut is just weighing on everything.”
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The prices of oil plummeted by nearly 50% in 2014, the biggest decline since the 2008 financial crisis. One of the primary reasons causing the fall of oil prices was the resistance of the Organization of Petroleum Countries (OPEC) particularly Saudi Arabia to reduce their oil production as it competes with U.S. produces.
Saudi Arabia decided to maintain its crude oil output of approximately 9.5 million barrels per day despite the fact that there is an oversupply of approximately 1.5 million barrels per day in the global oil markets last year.
Russia and Iraq’s outputs are also rising, which are contributing to the surplus. Qatar recently estimated that the surplus in the global oil markets is about 2 million barrels per day.
Commenting on the issue, Bill O’Grady, chief market strategist at Confluence Investment Management said, “The path of least resistance is lower. There is no bullish news. OPEC refuses to cut production and there is no evidence of falling production outside of OPEC.”
On the other hand, Hans van Cleef, energy economist at ABN Amro Bank NV opined, “The market is obsessed with the supply side. Prices have dropped too fast and too far, but with the market this negative it’s hard to see a trigger which could turn the sentiment. If U.S. inventories are higher than expected, we could see Brent below $50 this week.”
The S&P 500 recorded its fifth consecutive losing trend over the past 13 months. Yesterday, the index dropped 1.8%, the biggest since October.
Today, Bill Gross, the former manager of the largest bond fund warned that “the good times are over. Gross is currently managing the $1.2 billion Janus Global Unconstrained Bond. He said, “When the year is done, there will be minus signs in front of returns for many asset classes.”
- Dow Jones Industrial Average (DJIA) – 17,370.29 (-0.75%)
- S&P 500- 2,002.47 (-0.90%)
- NASDAQ- 4,592.74 (-1.29%)
- Russell 2000- 1,165.30 (-1.36%)
- EURO STOXX 50 Price EUR- 3,007.91 (-0.50%)
- FTSE 100 Index- 6,366.51 (-0.79%)
- Deutsche Borse AG German Stock Index DAX- 9,469.66 (-0.00%)
- Nikkei 225- 16,883.19 (-3.02%)
- Hong Kong Hang Seng Index- 23,485.41 (-0.99%)
- Shanghai Shenzhen CSI 300 Index- 3,641.06 (-0.01%)
Stocks in Focus
Oracle gained as much as $44.18 per share during the early morning trading today after analysts at Piper Jaffray upgraded their rating for the stock to Overweight. However, the stock ended the trading session at $43.11 per share, down by more than 1%.
The shares of Frontline Ltd (FRO) climbed more than 23% to $3.16 per share after CNBC’s Karen Finerman made a bullish comment about the company. Finerman said, “I think they will squeak through their next debt payment and that will give them time which gives them hope.”
Herbalife declined again today. The stock dropped as much as 12% yesterday due to a report suggesting that the company’s sales are slowing. Today, the shares of the company dropped more than 7% to $30.42 per share due to speculations that Bill Stiritz, the chairman and CEO of Post Holdings and the largest shareholder of Herbalife is dumping his shares. The stock was lost more than 60% of its value over the past year.