Oil price drops and coronavirus lead to cratering stock market - New York Post

Lower crude oil prices are supposed to be a good thing. And for drivers and companies that use a lot of fuel they are.

And then there is Wall Street’s view, which is anything but positive.

Gasoline prices in many parts of the US could dip below the $2 a gallon level for the first time since early 2016. That’s the good news.

Last week, gas was going for an average of $2.38 a gallon, and that was already down sharply from the $2.43 a gallon the week before. And, remember, we will soon be entering spring, when motorists are supposed to be taking to the road more frequently and driving up the price of gas.

The prospects for higher energy prices changed over the weekend when Saudi Arabia announced it would crank up production of oil, which is having an immediate effect on the price of crude and will — more slowly — lower the price of gasoline.

On Monday, oil prices were down an astonishing 25 percent, or $10.15, to $31.13 a barrel after OPEC failed to come to an agreement on production levels and the Saudis, one of the biggest producers in the world, decided to spank the oil markets by promising higher output.

Problems occurred when Russia, which attends OPEC meetings but isn’t a member of the cartel, couldn’t agree to production limits.

The Saudis retaliatory production move sent oil down 30 percent at one point on Monday.

Back in the old days — a decade or so ago — there would have been no downside for America when OPEC encountered problems. Lower oil and gasoline prices would mean more money in peoples’ pockets and every company that sold goods or services would get a piece of that action.

We’d all be cheering. The White House would be gloating. The US economy would be on the verge of a boom at the expense of OPEC.

Lower prices are still a benefit to consumers. But things changed when America became more energy self-sufficient. That mainly occurred because of lots of oil production from difficult to reach shale rock formations throughout the country.

Today, the US produces 2.81 billion barrels of oil from shale alone through a process called fracking. The problem is that the fracking technique is expensive and oil can’t be extracted through this method for less than, at best, $35 a barrel.

That’s one of the reasons the stock market cratered Monday. With oil at this price, a lot of shale oil companies may not be able to survive. And the banks that financed their operations will take a hit. And the states that counted on revenue and jobs from shale oil production will be very disappointed.

Investors are afraid the dominoes will fall right on them.

And the stock market, of course, already had a lot of problems. The equities bubble began deflating a couple of weeks ago when the worldwide coronavirus outbreak caused investors to re-evaluate their overly generous value for stock prices.

Now, with the virus already creating concerns about the health of the world economy, the latest problems in the energy industry hit the markets with a double wallop.

What’s most worrisome is that the usual rescuers might not be able to help the stock market.

The Federal Reserve meets again next week. And the bond market, where interest rates have been collapsing, will force the Fed to officially cut its rates perhaps by as much as 75 basis points, or three-quarters of one percent.

But the Fed already cut rates by 50 basis points last week. And it did virtually nothing to help the stock market. And it is too early to determine it if will help the economy.

Companies’ problems today have nothing to do with the availability, or cost, of borrowing money.

The biggest problem is whether American companies will be able to get products made in Asia, where the coronavirus has been spreading from its origin in China, and whether US firms will be able to sell their goods overseas if quarantines continue.

So any action by the Fed might be futile.

Then there is the mysterious group that seems to rescue the stock market in times of dire trouble. Has the so-called Plunge Protection Team (PPT) — also known as The President’s Working Group on Financial Markets — been at work in this fragile market?

Stock prices rallied sharply in the last hour of trading on Friday, which made the losses bad instead of intolerable. That seemed to be the work of the PPT.

But all the 500-point rally in the Dow Jones industrial average in the last hour on Friday only set the market up for a bigger decline on Monday. And anyone who was lured into the market on Friday’s bounce regretted it on Monday.

And that will probably teach people a lesson about buying the dips.

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Oil price drops and coronavirus lead to cratering stock market - New York Post
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