Oil Continues To Slide
Stocks opened lower this morning as shares of energy companies and miners were dragged down by a continued slide in oil prices, and some renewed fears of a global economic slowdown on weak Chinese trade data.
By Paolo Palazzi-Xirinachs
Tuesday, December 8, 2015
U.S. crude fell below $37 per barrel for the first time since early 2009 amid fears the world was running out of capacity to store crude as a global glut intensifies. In response to this, major oil stocks Exxon (XOM.N) and Chevron (CVX.N) were down more than 3%, while miner Freeport McMoRan (FCX.N) fell 3.6%. Exxon was the biggest drag on the S&P and was the second-biggest drag on the Dow today.
But stock market analysts at two of Wall Street’s biggest firms say the free fall in energy shares has gone on long enough.
JPMorgan Chase & Co. boosted its rating on U.S. energy companies to a buy in a report yesterday while Barclays Plc upgraded global oil producers. For Dubravko Lakos-Bujas, the head of U.S. equity strategy at JPMorgan, a combination of improving economic growth, a contracting crude supply from non-OPEC producers and excessive short selling are likely to mark a turning point.
“Our overweight recommendation for the sector is clearly a non-consensus call with elevated credit spreads, an expected double-digit default rate next year, high short-interest and the Street’s stock ratings are the lowest in more than 10 years,” said Lakos-Bujas.
The calls come as energy stocks are plunging for the fifth day after the Organization of Petroleum Exporting Countries (OPEC) announced last week it will maintain oil production at current levels. The main driver of the negative sentiment now is the dysfunction OPEC displayed last week when it failed to agree on a quota and created the perception of a free-for-all within the producer group. Analysts now see earnings by Standard & Poor’s 500 Index energy companies barely budging in 2016 after predicting a 9.7% jump as recently as in September, according toBloomberg data. Analysts have also cut their price targets for energy stocks by 14% since June, while overall estimates for the S&P 500 have held steady.
China’s imports have slumped for a record 13th straight month, exacerbating the drag on other nations as the world’s second-largest economy demands fewer raw materials. The weak data rekindled worry the slowdown there will spread -- a concern that precipitated the summer rout on global financial markets.
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