Oil Price Cut Weakens Indices

Oil Price Cut Weakens Indices

Saudi Arabia surprised economists by reducing prices for crude oil sold to the US on Monday afternoon. The move increased pressure on US energy producers and could yield more decline for the market.



Oil Price Cut Weakens Indices
Oil Price Cut Weakens Indices

Additionally, US elections held today will determine the shape of the Senate and House of Representatives as Republicans look to gain seats, according to Bloomberg.
Stock indices opened lower today after responding negatively to yesterday’s oil-price news. The Dow fell 0.1%, the S&P 500 dropped 0.2% and the Nasdaq declined 0.4%.

Future of oil industry in question
The unexpected crude oil price cut from Saudi Arabia raised questions over the strength of the US oil industry, according to The Wall Street Journal. Although the lower oil prices benefit consumers by reducing the cost of gasoline, they also tighten profit margins for energy companies. Analysts predicted the Saudis would either cut prices or raise prices across ever major reason. Some viewed Saudi Arabia’s decision to focus on its US market share as a move to weaken US shale-oil production.

“The market reacted to it very negatively, thinking, ‘Here we go, we’re going to have a price war in the United States,’” Anthony Lerner, senior vice president of industrial commodities at brokerage R.J. O’Brien & Associates LLC, told The Wall Street Journal.

US midterm elections influence indices
Investors await the outcome of Senate and House of Representatives elections today, Bloomberg reported. The Republican Party could make ground in both houses, though it is still too close to call. In the Senate, Republicans have a chance to gain a majority, while they look to expand their control of the House of Representatives.

The uncertainty surrounding the elections outcome may weaken stock indices today – but the main driver will be the Saudi crude oil price cut.

“Look at the price of oil way down – that tells you everything you need to know,” Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles, told Bloomberg. “There might be some important things that come out of the election, but none of them will be bigger than the momentum from earnings and the impact that the price of oil will have on market sentiment.”

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