Oil prices in New York tumbled amid speculation that OPEC will limit its production beyond May, sending the key U.S. stock indexes lower in early trading. Oil prices fell to fresh three-year lows after a surprise increase in U.S. crude inventories.
As U.S. equity markets opened on Wednesday, Wall Street suffered its worst day in six weeks after a global oil rout prompted investor concern about rising U.S. inflation. U.S. crude futures crashed 5 percent to $68.82 a barrel, the lowest price since July 2015, while global benchmark Brent crude slumped over 4 percent to $73.80 a barrel. Oil prices have lost more than $40 from their 2017 highs in a little over a month. They still remain higher than this time last year. Crude is now down 26 percent from its November peak.
“It’s my personal opinion that this is just the beginning of a bear market. We are still waiting for oil prices to make a sustained decline to the $50 to $55 range,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. “This is still a market driven by anxiety with supply-demand fundamentals tilting substantially in the bear camp.”
The S&P 500 index lost 1.2 percent, with shares of materials companies falling as much as 3.1 percent. The Dow Jones Industrial Average fell as much as 350 points and the Nasdaq 100 Index lost 1.9 percent, its biggest drop since February. European stocks headed lower, while commodity-related stocks extended declines.
U.S. Treasury yields pushed higher, rising two basis points for a third straight day as the 10-year yield matched the fastest climb in more than four years and the 30-year broke above 3 percent. Speculation that monetary policy is getting more hawkish helped fuel the surge as Russia, Saudi Arabia and Venezuela signaled they were unlikely to go along with cuts by the Organization of Petroleum Exporting Countries, while President Donald Trump said he’d “like to see” a higher oil price.
Federal Reserve Bank of Philadelphia President Patrick Harker said he prefers to wait for more signs of a pickup in inflation before hiking U.S. interest rates. “This was a disappointment of the oil market and continued to reinforce the theme that we’re going to be raising rates, probably three times this year,” said Bill Northey, chief investment officer at U.S. Bank Wealth Management. “After seeing $60 in crude oil, it seems to be softening the demand, not just coming from the energy sector, which was a strong factor.”
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— With assistance by Saijel Kishan