Oil Suffers Worst Day in Years as Experts View Energy Stocks in "Death Spiral"

Thursday August 1, 2019

Five consecutive days of crude price gains countered by the overall sentiment that the global economy is in trouble suggested that a sizeable disruption was impending, and that disruption happened on Thursday when the U.S. benchmark posted its worst day in more than four years after U.S. president Donald Trump announced he will impose more tariffs on products from China.

Brent plummeted a whopping $4.55, or 6.99 percent, to settle at $60.50 per barrel, its biggest daily percentage drop since February 2016; West Texas Intermediate ended the session down $4.63, or 7.9 percent, at $53.95, its biggest percentage decline since February 2015.

Trump's announcement of an additional 10 percent levy on $300 billion worth of Chinese goods starting on September 1 quashed hopes that the two countries had reached a truce in their trade war - although sentiment for the past week suggested that nobody held out much hope for a resolution of the matter anytime soon.

John Kilduff, founding partner at Again Capital Management, said, "The U.S.-China trade war has damaged the energy demand outlook greatly, already, and this [Thursday's trading performance] will only add to those concerns."

Bart Melek, head of global commodity strategy at TD Securities, pointed out that "All of the markets are reacting to what the president said; anything that requires an appetite for risk got smoked, and that includes oil."

When it was noted that a bigger-than-expected decline in U.S. inventories earlier this week and a fall in Organization of the Petroleum Exporting Countries (OPEC) production in July are usually  bullish drivers for prices, Victor Shum, senior partner at IHS, replied that these factors are no match for geopolitical worries: "Supply is plentiful and demand growth is showing signs of weakening globally because of trade conflicts, Brexit, and other events that tend to potentially weaken economic growth and, hence, oil demand.

"There's a lot of oil out there; U.S. output is growing strongly."

Mark Tepper, president and CEO of Strategic Wealth Partners, was even more explicit in his assessment of the energy sector overall: he said "energy's just in a death spiral" - however, he still sees buying opportunities in the space, which he agreed has been "dead money" for years.

He added, "In our opinion, if you're investing in energy stocks, it's all about being selective and finding that right entry point, and there's lots of companies today that are being unfairly punished."