Significant crude oil price declines send shocking waves to equities trading

Source:Reuters Published: 2018/12/7 12:08:40

US stock investors are wary that a 30 percent slump in oil prices will pressure corporate profits while also presenting a sign of weakness in global growth at a time when they are already weighing when the long economic expansion will end.

Crude prices rebounded off one-year lows to start the week, with investors focused on Thursday's meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC) and allied producing countries including Russia. A monitoring committee of OPEC and its allies agreed on the need to cut oil output in 2019, two sources said.

Oil's drop holds economic benefits, including lower costs for some companies and cheaper fuel prices for consumers. But investors were already bracing for a significant drop in US profit growth next year, and the oil price slump is poised to bite into profits for energy producers and related companies that are part of Wall Street's benchmark S&P 500 stock index.

OPEC and allied producers used output cuts to curb an oil glut that sent prices from late 2014 into a prolonged slump, bringing prices to below $30 a barrel at the start of 2016. But supplies are growing again, and the China-US trade tensions and other factors have investors worried that slowing economic growth could erase demand.

"What started the sell-off on oil was a supply issue," said Alicia Levine, chief market strategist at BNY Mellon Investment Management. "In the last couple of weeks, what we are getting is fears of slowing demand. And fears of slowing demand are directly related to fears of global growth slowdown."

Crude oil prices have fallen 30 percent or more 13 times since 1982, said Ed Clissold, chief US strategist at Ned Davis Research.

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