Postcard From New York – Oil Spoils Stock Party

Money&Co.’s CEO, Nicola Horlick, takes a look at the state of the markets from the American side of the Atlantic.


Greetings from New York! The US stock market is focused on the oil price again and fell in the week on the back of a further slump in the crude price. The US crude price closed at $43.96 per barrel. Just six months ago, the price was $95. Last week, the International Energy Agency warned that US oil prices would remain weak and may go lower as oil stocks continued to rise, despite the cold weather on the east coast. Indeed, there is concern that a shortage of storage may occur shortly in the US as producers continue to pump oil.

Interestingly, a wide price gap has developed between US crude oil prices and Brent crude, which is currently trading at $54.43 a barrel. However, it is possible that sanctions on Iranian oil could soon be removed, which would push OPEC’s production back above 31 million barrels a day.   This would result in a fall in the price of Brent crude.

As oil producers in the US and the Middle East stubbornly ignore the low price of oil, consumers are benefiting from lower prices. In the US, the fall is the equivalent of an $800 post-tax pay increase for every car owner. Overall, the sharp fall in the oil price is seen as a positive for the US economy.

Economic history shows that when the oil price is weak, the dollar is usually strong and this has certainly been the case this time around.   The dollar had been buoyed by speculation that the Fed was close to raising interest rates for the first time since 2008. However, the Fed indicated on Wednesday that it was not in a hurry to raise rates, partly because it is concerned about the strength of the dollar and the impact it is having on US multi-nationals and exporters. Earnings announcements have generally disappointing so far this year and there is a concern that there could be a sharp stock market correction. US stocks certainly look expensive.

So, what does all of this mean for the UK? I’ll bring you my thoughts on that tomorrow.


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