The US stock indices completely lost the optimistic mood observed at the start of trading, declining during the day amid May consumer confidence data and inflation expectations that rose to a 35-year high.
The Dow Jones Industrial, which had rallied almost 1.5 percent from the open, eventually “gave up” the session in minus 1.5 percent, losing about 500 points. The S&P 500 broad market index lost slightly more than two, and the Nasdaq Composite lost nearly three.
Chevron is leading the Dow Jones
The anticipated rally is failing and the rebound is starting to lose momentum. Twenty-seven components of the major equity benchmark closed in negative territory, and only oil giant Chevron (CVX) +1.6%, chemical holding company Dow (DOW) +0.59%, and UnitedHealth (UNH) pharmaceuticals were a bright spot on the DJIA chart on June 28.
Investors are “prepping” Chevron (CVX) stock for gains. Photo: MarketWatch
And the fall leaders were Nike (NKE) -6.98%, Salesforce (CRM) -5.53% and Home Depot (HD) -4.43%. Despite the sporting goods leader’s strong quarterly results, the outlook for the next fiscal year was too pessimistic.
In contrast to yesterday’s lackluster session, sellers showed more confidence on Tuesday, easily driving even the performance of large-cap companies into the red. Against this backdrop, shares of Big Tech giants like Amazon (AMZN) and Tesla (TSLA) lost more than 5%. The capitalization of Alphabet (GOOG) and Microsoft (MSFT) fell by more than 3%. The most expensive U.S. company Apple (AAPL) has fallen in price by 2.98%.
In the light of the above, seems quite interesting, and more importantly “timely,” the opinion of ultra bearish Morgan Stanley analyst Mike Wilson, who in a research note Monday “joined” the strategists at JPMorgan, who see the market a local rebound of the same five to seven percent.
Demand is back in oil stocks
As yesterday, investors are starting to return to defensive oil stocks. And while in the Dow Jones Index Chevron led proudly alone, in the S&P 500, the top four stocks at once represented the energy sector: Hess Corporation (HES) +5.57%, Occidental Petroleum (OXY) +4.77%, Marathon Oil (MRO) +4.36% and Diamondback Energy (FANG) +4.35%. Shares of ExxonMobil (XOM), though not in the leaders, but also weighted down by 2.77%.
Such development of events was favored by indicators coming from commodity market. Oil futures contracts continued to grow. West Texas benchmark WTI reached $112 per barrel, while North Sea Brent has risen above $118. The new energy vector in the G7 policy heats up the prices for the black gold.
This time the focus is on the Russian oil price limit discussed in Europe. Reuters, in particular, reported about a “positive and productive” discussion of the issue with representatives of China and India, which, according to the agency, have a clear interest in getting oil from Russia at an even greater discount.
G7 policy heats up oil prices
Similar conversations are taking place about natural gas. It is Emmanuel Macron’s desire, in a friendly move, to reduce Moscow’s revenues from exports of natural gas to Europe that has kept NG quotations on European exchanges at around $1500 per 1,000 cu m for the second week in a row.
Frankly speaking, I do not fully understand the idea of restricting the prices for energy resources from Russia. Natural gas was quietly traded at $150 exactly two years ago without disturbing anyone. But no sooner had one political snout been involved in the delicate market mechanism of price formation than the result was immediate. The price of fuel went up 1000%.
A question for those who understand the subtle policies of our Western partners. What could any news of any restrictions on the oil market lead to? Or are they planning a situation where oil will be $100 a barrel on the world market, and Russia is only allowed to sell at $20? Or what would this scheme look like?
Leonid Fedun, who recently retired as Lukoil’s vice-president, voiced the idea a few months ago that it would even be beneficial for us to reduce oil supplies to the world market, and stop clinging to volumes. The physical deficit caused by shortages of oil supplies from Russia will immediately create a price balance between supply and demand. Just by creating the slightest movement to reduce exports from Russia, oil prices will recoup these actions in literally two or three trading sessions.
Sorry, but I continue not to believe in even the slightest success of Western strategists in any such plan. Of course we can assume, since it happened with gas, it could very well happen with oil. But what will they achieve with oil at $200 a barrel? Or do they think they can force the whole world not to buy from us at a discount, but at $150? These are interesting times we live in.
The Americans have already tripled their LNG shipments to Europe in the last three months. And this despite the fact that total gas imports of LNG to Europe have only increased by 75%. If the U.S. is going to squeeze anything out of the current situation, it will be increased supplies of its democratic oil to Europe at inflated prices, while our volumes will shift to Asia. There will be no tangible losses for Russia. There is no reason for that at all. And the question of how the Old World will spend the winter with gas at $2000 and oil at $150 is a big and open one.
Taking into account a new wave of worries on the world energy markets, investments in the oil and gas sector seem to be quite promising. It will be even more fun by the fall…
