Dow Futures Plunge After Drone Attack Shocks Oil Market

Journalist:
September 15, 2019

Dow futures pointed to heavy losses at Monday’s opening bell after a devastating drone attack on Saudi oil production infrastructure shocked the global energy market.

Dow Futures Dive Nearly 150 Points

US stock futures careened lower when trading opened on Sunday night. Dow Jones Industrial Average futures fell 134 points or 0.49%, implying losses of 138.52 points in the DJIA.

Dow futures pointed to substantial losses on Monday. | Source: Yahoo Finance

S&P 500 futures fell 0.47%, and Nasdaq futures declined 0.69% as the mood turned bearish on Wall Street.

Saudi Oil Field Attack Will Hurt US Consumers – But Not the Economy

Dow futures recoiled to the news that drone attacks had decimated Saudi Arabian oil production. US Secretary of State Mike Pompeo blames Iran for the attacks, which wiped out 5.7 million barrels of daily production, and Aramco – the Saudi national oil company – is racing to mitigate those losses.

According to the Wall Street Journal, Aramco aims to restore one-third of the lost oil production by Monday. However, it could take weeks to return all 15 damaged production facilities back to full capacity.

Ryan Kellogg, an economist at the University of Chicago, said that the Saudi oil production cuts should have a limited impact on the US economy as a whole since it should be a boon to energy production stateside.

“Ten years ago you’d say unambiguously, if there’s a supply shock in the Persian Gulf, this would clearly be a net negative for the U.S.,” Kellogg said. “Now it’s much more of a wash than it used to be.”

Shortly before futures trading began, President Trump tweeted that he had authorized the release of oil from the Strategic Petroleum Reserve “if needed…to keep the markets well-supplied.”

However, US crude oil futures still spiked 15% when the market opened. At last check, WTI Crude traded at $61.38 for a gain of 11.91%.

Drone Attack Gives Fed Another Threat to Chew On

According to CME’s FedWatch tool, investors expect the Fed to cut its target interest rate by 25 basis points at its policy meeting this week. | Source: REUTERS / Jim Young

Economists might say that the fallout from the drone attacks will be a wash for the US as a whole, but that doesn’t mean consumers won’t feel the pinch from rising oil prices – especially at the gas pump. Research shows that consumer confidence tracks inversely with gas prices, though small spikes don’t necessarily affect spending.

A drop in consumer sentiment – which beat economist estimates in September – could embolden bears as they warn investors of a looming recession.

The lingering economic impact of the drone attack also adds another bullet point to the Federal Reserve’s agenda at its upcoming policy meeting. The US central bank is overwhelmingly expected to reduce its interest rate target by 25 basis points, though the stock market’s recent rally had caused the probability of the Fed maintaining its current target to rise above 20% last week.

The Dow has climbed for a remarkable eight consecutive sessions, but gains petered out as the indexed crawled closer to setting a new all-time high. On Friday, the index added 37.07 points to close at 27,219.52 – just 179.16 points below its July 16 peak.

Josiah Wilmoth @Y3llowb1ackbird

Josiah is the US Editor at CCN, where he focuses on financial markets. He has written over 2,000 articles since joining CCN in 2014. His work has also been featured on ZeroHedge, Yahoo Finance, and Investing.com. He lives in rural Virginia. Follow him on Twitter @y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com.