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Not only did oil prices plunged yesterday but they also took the stock market with them. The three main market indexes fell 1.5% or more.
The spark for the latest sell-off in oil was a report by the Organization of the Petroleum Exporting Countries that foresaw the demand for its crude would dip next year to levels not seen in more than 10 years. The United States among other countries has stepped up its own production, thereby diminishing demand for OPEC’s supply.
Oil’s price decline rapidly increased after the Energy Department reported that domestic oil inventories had increased by 1.5 million barrels last week. This was breaking news as analysts had expected a decline.
Crude oil for January delivery fell $2.88, or 4.5%, to settle at $60.94 a barrel in New York. The price of oil has now dropped more than 40% from a peak of $107 in June.
Investors may start to get worried as some producers may be forced out of the highly competitive business. On the other hand lower oil prices are good for consumers and some industries.
Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research is quoted in saying, “The slide in oil has been pretty dramatic.” “There is an overreaction to these lower energy prices, which is what we seem to be seeing right now, where it becomes more panic selling.”
Note the Facts: The Dow Jones industrial average fell 268.05 points(1.5%), to 17,533.15. The Nasdaq composite index fell 82.44 points(1.7%), to 4,684.03.
Stocks have been pushed far down as falling oil prices and concerns about global growth racked the market which closed at record levels on last Friday. The market did rise however that day after the government reported a boost in hiring in November. The jump placed the United States on track for the healthiest year for job creation since 1999.
Investors are speculating the Federal Reserve will signal next week that it is nearing its first rate increase in more than eight years due to the ever-strong American economy. Federal Reserve policy makers are scheduled to convene a two-day meeting on Tuesday.
Rob Eschweiler, global investment specialist at J.P. Morgan Private Bank in Houston says, “The stronger employment data and economic data that we have gotten has only increased people’s confidence that the Fed is going to be raising rates” by the middle of next year.
Exxon Mobil and Chevron were among the biggest losers in the Dow. Exxon Mobil dropped $2.71(3%), to $88.67, while Chevron fell $2.15(2%), to $104.86. The S.&P. 500 energy sector also lost 3.1%.
In other but related news shares of airlines, rose dramatically as oil plunged. Southwest Airlines gained 75 cents, or 1.8%, to $41.48. The stock has gained about 120% this year. United Continental jumped $1.17, or 1.9%, to $63.69.
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