Energy has taken center stage in financial markets to start 2020, an unusual position for a sector that has been ignored by investors for more than a year.
Energy stocks cumulatively make up about the same percentage of the S&P 500 as Microsoft (ticker: MSFT), but energy’s importance to the global economy remains enormous. When oil prices rise, traders immediately fear a recession. When the price of Microsoft Office rises, no one even blinks.
So it was with relief on Tuesday that traders watched oil slip for the first time in three days. Brent crude futures fell 0.4% to $68.29. West Texas Intermediate futures were down 0.7% to $62.84. The S&P 500 was off 0.4% shortly after the open.
Brent gained 4% in the days following a U.S. missile attack late Thursday that killed Iranian General Qassem Soleimani. It briefly climbed above $70 on Monday, a key milestone that could have caused more anxiety about the economy, had it held. As dramatic as the rhetoric has been, “it’s rare that geopolitics has a lasting impact on the economy and markets,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Iran has vowed to retaliate against the U.S. or its allies, but until there is evidence of where it will strike, it looks as if oil has hit a ceiling.
“The trajectory of how the crisis evolves will largely hinge on Iran’s next move,” Raymond James analyst Pavel Molchanov wrote after the U.S. strike. “Short of blockading the Strait of Hormuz, Iran might seek to reprise attacks on oil industry targets in Saudi Arabia and/or other U.S.-allied Gulf states. While there is no way to quantify the probability of any such event, suffice it to say that our baseline oil price forecast for 2020—$65 WTI, $70 Brent—does not assume any incremental supply disruptions.”
Oil stocks were lower shortly after the market opened. EOG (EOG) fell 1.2%, while Chevron (CVX) dropped 1.6%. The Dow Jones Industrial Average was off 0.3%.
Write to Avi Salzman at avi.salzman@barrons.com
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January 07, 2020 at 09:52PM
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Oil Price Hits a Ceiling After Gains Following the Iran Attack - Barron's
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