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Oil Price Collapse Threatens to Scorch an Already-Nervous Stock Market

Last Updated September 23, 2020 1:50 PM
Laura Hoy
Last Updated September 23, 2020 1:50 PM
  • Oil prices slipped with weakening demand and worries about storage capacity.
  • Another week of miserable earnings is on tap as analysts warn that Q3 will be even worse.
  • A mix of coronavirus lockdown exit strategies across the world proves lawmakers everywhere are flying blind.

U.S. stock market futures ticked lower on Monday morning as falling oil prices weighed on sentiment. Adding to doom and gloom on Wall Street was another week of brutal quarterly results as several components of the Dow Jones Industrial Average prepared to report.

Oil Price Decline Pushes U.S. Stock Market Lower

Oil futures slid lower on Monday morning as optimism regarding OPEC’s production cut was all but erased by lacking demand. Brent futures lost 2.28% to trade at $27.44 per barrel while WTI was down 18.8% to just $14.82 as the May contract faced imminent expiry.

WTI oil price, Oil Price
WTI slipped lower as the May 2020 contract faced an imminent expiry |Source: Bloomberg 

The oil price declines came despite an OPEC+ meeting last week that yielded the group’s largest-ever coordinated production cut. The group agreed to cut nearly 10 million barrels per day, or 10% of the world’s supply, throughout May and June. But reality started to set in later in the week as it became clear that much more would need to be done  to offset demand declines. 

[The oil industry is up against] the bleakest oil macro outlook since at least the late 1990s and perhaps ever.

OPEC is expected to start discussing more production cuts soon, but it could be too little too late. U.S. crude storage is inching dangerously closer to capacity. The EIA revealed that U.S. storage facilities are now 57% full , a 50% increase over the past four weeks. At this rate, some believe we’ll run out of space by the start of May .

Stock Market Braces for Another Painful Week of Earnings

Meanwhile earnings season marched onward with what’s expected to be another week of brutal earnings declines. Netflix (NASDAQ:NFLX) could be a bright spot when it announces on Tuesday as the firm is expected to have seen a marked increase in subscribers amid the coronavirus pandemic.

Texas Instruments (NASDAQ:TXN) and Intel Corp. (NASDAQ:INTC) will provide insight into how badly chipmakers were hit when they report on Tuesday and Thursday respectively.

stock market, the dow
The Dow will have a big week as several components are due to report this week. |Source: Yahoo Finance 

It will be a massive week for the Dow as a handful of heavy hitters including Coca-Cola (NYSE: K.O.), International Business Machines (NYSE: IBM) and American Express (NYSE: AXP) all report. 

By all accounts, it’s expected to have been a brutal quarter and investors seem prepared for that— the stock market so far has been relatively resilient to disappointing quarterly results. But as Key Private Bank’s Stephen Hoedt pointed out, this is just the tip of the iceberg .

[B]ecause the COVID-19 pandemic wasn’t taken seriously until early March, less than a third of the quarter was impacted by various lockdown orders across the globe.

In other words, the 14.% earnings decline that’s forecast this quarter might look pretty good come Q3 when the impact of coronavirus has been fully realized. 

Lockdown Exit Strategy

Countries around the world are looking for ways to lift lockdowns and resume life after lockdown without sparking a second deadly coronavirus outbreak.

Outbreaks in Asia appeared to be worsening  as Singapore, India and Japan all reported rising case numbers. In the U.K., the government continued to struggle with meeting testing targets and maintained that it wasn’t able to predict an end to the lockdown measures just yet. 

Protests across the U.S. broke out as people urged their local lawmakers to lift lockdown restrictions| Image: Jeff Gritchen/The Orange County Register via A.P.

In the U.S. protests against stay-at-home orders erupted in several states  over the weekend. While some have cautioned that the protestors, many of which had no protective equipment and didn’t abide by social distancing recommendations, could be prolonging the virus’ economic devastation. 

Donald Trump doubled down on his criticism against China over the weekend, saying it’s possible that the nation caused the coronavirus outbreak on purpose .