Drop In Oil, Growth Concerns Stifle Market
Speculation began last month that some nations in OPEC were looking to defend market share even at the cost of lower prices, after OPEC boosted production in September amid declines in the value of global oil benchmarks.
Wednesday, November 5, 2014 - 00:00
The price of oil has been sliding even further since, with another precipitous drop today, after Saudi Arabia announced a price cut for US customers. That discount comes against a backdrop of growing production levels of domestic oil supplies from the shale boom. US light crude oil futures for December were off by 2.7% or $2.14 at $76.60 a barrel by mid-afternoon in New York, earlier dipping below $76 a barrel to set the lowest level in more than three years.
There has been no official statement from OPEC on their strategy for future oil production; the cartel is next scheduled to meet to discuss output targets on November 27. The Energy Department, meanwhile, releases its weekly report on US crude oil inventories tomorrow morning, with stockpiles expected to have increased for a fifth successive weak.
It is not just concerns over over-supply that are dragging at the price of oil, though — there are also fears that global growth may be slowing. One particular area of concern is the eurozone. Producer Price Index data released today for September showed a slightly better-than-expected 0.2% rise, though August’s data was revised down from -0.1% to -0.2%. The year-on-year change remains at -1.4%, the lowest level since March, and despite coming in above expectations, today’s report is unlikely to alter perceptions that inflationary risks in the eurozone remain very much to the downside.
The biggest news for the eurozone today, though, was that the European Commission has trimmed its forecasts for eurozone growth to 0.8% for this year, down from the previous estimate of 1.2%. Growth projections for 2015 have also been slashed, down from 1.7% to 1.1%. Despite these gloomy forecasts , the euro has made ground against the dollar today, rising 0.57% to 1.2553 and the dollar has been generally weak today, sliding 0.68% against the Swiss franc and 0.43% against the Japanese yen. USD/CAD was up 0.33% at 1.1395 though, the Canadian dollar being hit hard by the drop in the price oil.
Slowing economy qualms send stock indices lower
Growth concerns have hampered the US stock indices today, pushing the S&P 500 index down 0.28% or 5.6 points to 2012.2, with weakness found in the energy sector, unsurprisingly. The Dow Jones showed a bit more resilience, though, trading up 0.03% or 5 points at 17,371.
Though economic data has generally suggested the US economy is in a much stronger state than Europe, there was an indication today that the manufacturing sector may have been experiencing some headwind. Though subjective measures, such as yesterday’s ISM manufacturing survey, are still pointing to expansion, the cold, hard data hasn’t been as encouraging. September’s factory orders report, released today, shows a 0.6% decline. Though this is a touch better than expected (the consensus estimate was for a 0.7% decline), following as it does August’s 10.0% contraction in factory orders, it doesn’t point to an encouraging trend.
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