Oil prices plunge and stocks hit lowest level since 2014

Trader Gregory Rowe works on the floor of the New York Stock Exchange, Wednesday, Jan. 20, 2016. Energy stocks are leading another sell-off on Wall Street as the price of oil continues to plunge. (AP Photo/Richard Drew)

NEW YORK (AP) — Another plunge in the price of crude oil sent stocks sharply lower on Wednesday, bringing the market to its lowest level in nearly two years.

Energy companies were pummeled as the price of crude oil sank almost 7 percent, threatening more damage to an industry that has already been stricken with bankruptcies, layoffs and other cutbacks.

The price of U.S. crude fell below $27 a barrel amid a global glut in oil supplies that won’t go away. That’s the lowest price since May 2003 and a far cry from the $100 a barrel it fetched in the summer of 2014.

While cheap oil is good for many companies and consumers, investors are worried demand is falling because the global economy is slowing down.

Overseas markets fared no better. Japan’s Nikkei index entered a bear market, down 20 percent from its peak in June, and European benchmarks lost between 3 and 4 percent.

Gold and U.S. government bonds, traditional safe havens, rose in value as investors shifted money out of stocks.

KEEPING SCORE

The Dow Jones industrial average lost 322 points, or 2 percent, to 15,696 as of 2:56 p.m. Eastern time. It was down as much as 565 points earlier. The Standard & Poor’s 500 index fell 30 points, or 1.7 percent, to 1,850. The Nasdaq composite index sank 31 points, or 0.7 percent, to 4,446. The Dow and S&P 500 are down 10 percent so far in January; the Nasdaq is down 11 percent. The losses were widespread; all 10 of the S&P 500’s industrial sectors fell.

OIL DOWN AGAIN

Oil prices had already fallen to 12-year lows this week and U.S. crude dropped $1.91, or 6.7 percent, to $26.55 a barrel in New York. That was the biggest one-day plunge for U.S. oil since Sept. 1. U.S. crude is down 28 percent in 2016.

Brent crude, a benchmark for international oils, fell 88 cents, or 3.1 percent, to $27.88 a barrel in London.

OIL GLUT

James Liu, global market strategist for JPMorgan Funds, said the global economy remains relatively healthy and demand for oil hasn’t fallen off. But companies are still producing a great deal of oil, so tremendous stockpiles have accumulated. While companies started shutting down drilling rigs and wells in late 2014 after prices started to decline, production of oil didn’t change much.

“We’re starting to see production declines basically two years after rig count started to decline,” Liu said. He said production will keep falling and oil prices will stabilize in the middle of 2016, then start rising.

ENERGY KEEPS FALLING

Energy stocks were pelted. Devon Energy lost $2.78, or 11.9 percent, to $20.70. Chevron sank $4.62, or 5.7 percent, to $76.89, the biggest loss in the Dow average. Financial stocks were also hit because banks could lose billions on loans to oil and gas companies. Bank of America lost 74 cents, or 5.2 percent, to $13.50.

WHEN WILL IT END?

Jack Ablin, chief investment officer of BMO Private Bank, said he thinks stocks will fall a bit further still. But he doesn’t expect a global collapse. Ablin said that for years, investors bought stocks without too much regard for risk. He said investors felt that if things ever got too bad, the Federal Reserve would help prop up the market.

“Investors were comfortable taking outsize risks, not because they had earnings to fall back on, but because they had the Fed to fall back on,” Ablin said. So stocks made huge gains in the years since the financial crisis while the U.S. economy churned out years of steady but unspectacular growth.

BIG BLUES

Commercial tech giant IBM said its revenue fell for the 15th consecutive quarter. Sales fell about $170 million short of Wall Street forecasts. The stock shed $7.99, or 6.2 percent, to $120.12.

HOUSING SLUMP

Home-builders fell after the Commerce Department said housing starts decreased in December. Still, residential construction ended 2015 at its healthiest level in eight years. Beazer Homes sank 85 cents, or 9.9 percent, to $7.77 and PulteGroup fell 37 cents, or 2.4 percent, to $15.30.

SPIRIT RISES

Spirit Airlines said its profit margins will be stronger than expected and costs for aircraft rent, maintenance and other items will be smaller. Its shares gained $3.59, or 9.5 percent, to $41.49. The plunge in energy prices has also helped airlines save money on jet fuel.

BONDS

U.S. government bond prices rose as traders shifted money into lower-risk investments. The yield on the 10-year Treasury note dropped to 1.98 percent, its lowest level since last April, from 2.06 percent a day earlier. That yield, which is a benchmark for setting interest rates on home mortgages and other kinds of loans, has fallen sharply since the beginning of the year. At the end of 2015 it stood at 2.30 percent.

METALS

The price of gold rose $17.10, or 1.6 percent, to $1,106.20. While gold is far below its prices from the financial crisis, it’s up 4 percent in 2016. The price of silver added 3.9 cents to $14.16 an ounce, and is up almost 3 percent for the year. Copper slipped 1.8 cents to $1.96 a pound and is down 8 percent for the year.

OVERSEAS

Japan’s Nikkei fell 3.7 percent and is down more than 20 percent from its June peak. Hong Kong’s Hang Seng retreated 3.8 percent. The Shanghai Composite Index lost 1 percent. In Europe, Germany’s DAX tumbled 2.8 percent and France’s CAC-40 shed 3.5 percent. Britain’s FTSE 100 sank 3.5 percent.

CURRENCIES

The dollar fell to 116.72 yen from 117.44 yen late Tuesday. The euro fell to $1.0895 from $1.0923.

MORE ENERGY

Wholesale gasoline dipped to $1.018 a gallon. Heating oil plunged 4.3 cents, or 4.7 percent, to 86.6 cents a gallon. Natural gas rose 2.7 cents, or 1.3 percent, to $2.118 per 1,000 cubic feet.

KXAN.com provides commenting to allow for constructive discussion on the stories we cover. In order to comment here, you acknowledge you have read and agreed to our Terms of Service. Users who violate these terms, including use of vulgar language or racial slurs, will be banned. If you see an inappropriate comment, please flag it for our moderators to review.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s