Markets React To Plunging Oil Prices


The Supply Glut Continues with Oil

On Monday, 19 June 2017, Brent crude oil plunged to its lowest price since November 2016. This, on the back of boosted production from major OPEC countries such as Libya, Iraq and Nigeria. Oil futures markets wasted no time reacting to increased production, and mass put options on the commodity took place. Brent crude oil contracts for delivery in August 2017 are trading at $45.89 per barrel, down $1.02, or 2.17%. The 52-week trading range of Brent crude oil is $45.42 on the low end, and $60.21 on the high end. The US equivalent, WTI crude oil for delivery in July 2017 is trading at $43.05 per barrel, down $1.15 or 2.60%. The 52-week trading range for WTI crude oil is $42.75 on the low end, and $58.15 on the high end.

The big story is Libya. The country is now producing its highest levels of crude oil output since 2013, after the state inked a deal with Wintershall AG to continue producing crude oil. Traders across the board are increasingly concerned that OPEC will not be able to make good on its promises of decreased production. This has sent oil markets into sell-off mode and it reflects in lower prices. Across the Atlantic, West Texas Intermediate crude oil numbers are equally bearish. Since the February 23, 2017 high of $54.45 per barrel, oil has plunged some 20%. Any decline of 20% or more is considered the start of a bear market. With WTI crude oil producers and OPEC oil producers continuing to ramp up production, it makes sense that oil prices are dropping. This is evident in the increasing number of US oil rigs in production now.

Stock Markets React Sharply to Falling Oil Prices

On Tuesday, 20 June 2017, the Dow Jones Industrial Average notched up its second day of losses, trading at 21,504.26. Both the S&P 500 index and the Nasdaq composite index traded in the red at 2,444.24 and 6,203.26 respectively. Across the Atlantic, all major European Bourses traded in the red. The CAC 40 was down 0.32% at 5,293.65, the DAX 30 was down 0.58% at 12,814.79 in the FTSE 100 index was down 0.68% at 7,472.71. The biggest losers on the Dow include Chevron Corporation, Nike Inc., The Walt Disney Co., General Electric Corporation and Verizon Communications Inc.

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Chee Hin Teh 3 years ago Member's comment