Oil Prices plummet as Saudi Aramco slashes rates

Oil prices experienced a significant decline on Monday, dropping around four percent in response to Saudi Aramco’s abrupt decision to cut crude prices by two dollars a barrel for customers in Asia.

This move, outlined in an Aramco communique, intensified worries about an oversupply in the global market, even as energy majors’ shares faced downward pressure.

The reduction in oil prices, coupled with geopolitical tensions in the Middle East, contributed to concerns that the market is inundated with excess oil, according to senior market analyst David Morrison at Trade Nation. However, he noted that the ongoing geopolitical challenges prevented a steeper sell-off.

In contrast, Wall Street witnessed a remarkable resurgence, with major indices posting solid gains.

The Dow managed a 0.6 percent advance, despite Boeing shares experiencing an eight percent drop following an emergency landing on an Alaska Airlines flight. Economist Hugh Johnson attributed the rally to “a little bit of bargain hunting today.”

Monday’s market rally followed a sluggish start to 2024, with major indices facing weekly losses that interrupted a more than two-month rally driven by moderating inflation and hopes for Federal Reserve interest rate cuts in 2024.

The Boeing incident added further pressure on the aviation giant, as US authorities ordered the grounding of some 737 MAX planes.

CMC Markets analyst Michael Hewson described it as a setback for Boeing, already grappling with a damaged reputation from previous crashes, raising questions about the company’s quality control and manufacturing processes.

“This most recent incident raises a host of new questions about Boeing’s quality control as well as manufacturing processes, at a time when confidence in the 737-MAX is already wafer thin,” Hewson said.

Despite the turbulence in the oil and aviation sectors, European stocks ended higher, though London barely turned positive in the final minutes of trading.

The drop in oil prices affected energy shares, with Shell down 2.9 percent in reaction to a mixed trading update.

In Asia, a selloff in tech giants impacted Hong Kong, while Shanghai experienced a deep retreat. Tokyo’s market was closed for a holiday.

Looking ahead, attention shifts to the release of US consumer price figures, following Friday’s solid employment data.

Analyst Patrick O’Hare at Briefing.com highlighted that this report is likely to influence market expectations regarding rate cuts.

“This report is destined to be a driving factor of the market’s rate-cut expectations,” said Patrick O’Hare at Briefing.com.

Key Market Figures (as of 2210 GMT):

West Texas Intermediate: DOWN 4.1 percent at $70.77 per barrel
Brent North Sea Crude: DOWN 3.3 percent at $76.12 per barrel
New York – Dow: UP 0.6 percent at 37,683.01 (close)
New York – S&P 500: UP 1.4 percent at 4,763.54 (close)
New York – Nasdaq: UP 2.2 percent at 14,843.77 (close)
London – FTSE 100: UP 0.1 percent at 7,694.19 (close)
Paris – CAC 40: UP 0.4 percent at 7,450.24 (close)
Frankfurt – DAX: UP 0.7 percent at 16,716.47 (close)
EURO STOXX 50: UP 0.5 percent at 4,485.48 (close)
Hong Kong – Hang Seng Index: DOWN 1.9 percent at 16,224.45 (close)
Shanghai – Composite: DOWN 1.4 percent at 2,887.54 (close)
Euro/dollar: UP at $1.0963 from $1.0943 on Friday
Dollar/yen: DOWN at 144.19 yen from 144.63 yen
Pound/dollar: UP at $1.2740 from $1.2720
Euro/pound: DOWN at 85.88 pence from 86.03 pence