Rout in Oil Spurs Energy Stock Selloff While Dollar Strengthens

  • Crude slides beyond $38 a barrel as OPEC abandons output limit
  • Gold retreats as investors mull U.S. interest rate outlook

Deep Dive: Oil at Lowest Level Since 2009

Oil’s tumble to a six-year low ignited a rout in equity markets, as energy-related shares slid with currencies of commodity-producing nations. The dollar strengthened, while gold fell on rising prospects U.S. interest rates will be increased this month.

American crude sank past $38 a barrel to its lowest level since 2009 as OPEC abandoned its strategy of limiting production despite a global glut in the commodity. The Standard & Poor’s 500 Index fell as energy shares slid the most since Aug. 24, while Canada’s resource-heavy benchmark plunged the most in two months. Colombia’s peso slid to a record low as Norway’s krone and Russia’s ruble slumped. Gold fell from a three-week high as investors shifted their attention to the Dec. 16 Federal Reserve policy decision.

“Weak oil is the story today,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP. “The lack of economic numbers today is compounding the effect of energy losses. The Fed rate hike is imminent, and people are trying to square up heading into year-end.”

Oil has plunged more than 40 percent in the past year, hampering recoveries in the U.S. and Europe as capital spending wanes and inflation holds below central-bank targets. The dollar is recovering from its worst week since May after robust U.S. jobs data bolstered the case for higher rates from the Fed. Markets are focused on the prospect of further divergence in global monetary policy after he European Central Bank fell short of some analyst expectations when it bolstered stimulus last week.

Stocks

Energy shares in benchmark indexes from Europe to the U.S. and Canada led declines around the world. Oil and gas producers in the S&P 500 plunged 3.7 percent, while the same group in Canada lost 5.3 percent, the most since January.

Emerging-market energy shares tumbled to a two-month low, with Cnooc Ltd., China’s biggest offshore oil and gas producer, dropping 4.9 percent. Lukoil PJSC led declines on the Micex Index in Russia. The nation is the world’s biggest energy exporter, deriving about 50 percent of government budget revenue from the industry.

The S&P 500 fell 0.7 percent to 2,077.07 as of 4 p.m. in New York. The index rallied 2.1 percent Friday to cap its most volatile week since the northern hemisphere summer amid a spate of central-bank news and economic data. The odds for a rate increase from the Fed next week have climbed to to 78 percent, futures data compiled by Bloomberg show.

Keurig Green Mountain Inc. rallied 72 percent after the company said it will be acquired by a JAB Holding Co.-led investor group for about $13.9 billion in cash, bringing a massive windfall to shareholders after a year of watching the stock get battered.

The Stoxx Europe 600 Index rebounded from a rout last week, rising 0.5 percent Monday. The gauge trimmed earlier gains of 1.6 percent, with oil and gas producers losing 2.8 percent. Disappointment with ECB stimulus measures helped send the equity gauge down 3.4 percent last week.

The MSCI Asia Pacific Index dropped 0.1 percent after rallying earlier on Monday as Japanese stocks rebounded.

Commodities

West Texas Intermediate oil for January delivery fell 5.8 percent to $37.65 a barrel. Futures have dropped more than 40 percent since Saudi Arabia led OPEC’s decision in November 2014 to maintain output and defend market share against higher-cost U.S. shale producers. Brent for January settlement lost 5.3 percent, to $40.73 a barrel in London, the lowest level since 2009.

“We’re plunging with the dawn of an OPEC without quotas,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “The Saudis doubled down on their strategy of driving out higher-cost producers. They are prepared to play a long game to return to dominance.”

Gold retreated from its biggest weekly advance since September as investors weighed Friday’s U.S. jobs report, which showed both a growth in payrolls and a rise in the rate of underemployment. Bullion for immediate delivery fell 1.4 percent to $1,071.04 an ounce.

Iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China. Ore with 62 percent content delivered to Qingdao lost 2.4 percent to $39.06 a dry ton, a record low in daily prices compiled by Metal Bulletin Ltd. dating back to May 2009. 

Currencies

The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, rose 0.5 percent, extending Friday’s 0.4 percent climb. The index fell 1.1 percent last week as the euro surged more than 3 percent following the ECB’s policy meeting on Dec. 3. The common European currency fell 0.4 percent to $1.0835 on Monday.

The dollar is already this year’s best-performing major currency and traders are pricing in close to three U.S. rate increases of 0.25 percentage point in the next year, taking the Fed funds effective rate to 0.84 percent, from 0.13 percent, according to data compiled by Bloomberg. That’s the most hawkish since 2010.

Currencies of commodity-producing nations -- including the krone, ruble and the New Zealand dollar -- fell at least 1 percent amid oil’s tumble. A gauge of emerging-market currencies slid for a second day as the Korean won weakened 1 percent. South Africa’s currency slumped to a record low with the Colombian peso.

Emerging Markets

The MSCI Emerging Markets Index slid for a fourth day, declining 0.6 percent as the selloff in crude exacerbated concern that a stronger dollar will lure money away from riskier assets when the Fed tightens policy.

Venezuela’s 2027 dollar bonds rose in early trading, gaining 0.69 cent to 42.82 cents on the dollar. The country’s opposition alliance won a majority in Congress for the first time in 16 years in elections on Sunday, with preliminary results giving the opposition at least 99 seats of the 167 up for grabs in the National Assembly.

Bonds

Yields on two-year U.S. Treasuries traded close to the highest level since 2010 as traders prepared for the first interest rate hike in almost a decade. The yield on 10-year notes slipped four basis points, or 0.04 percentage point, to 2.23 percent, as investors sought out havens amid the equities selloff.

German 10-year yields fell 10 basis points to 0.58 percent. Rates jumped 22 basis points last week, their biggest increase since early June.

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