The US stock market was only open for a half day on Friday, but following news on Thursday that OPEC would not curb production, oil companies of all sizes took it on the chin. Despite the rout in oil names, by virtue of a higher close the Dow made yet another record high.
First, the scoreboard:
- Dow: 17,832.1, +4.3, (+0.02%)
- S&P 500: 2,067.8, -5, (-0.2%)
- Nasdaq: 4,790.3, +3, (+0.06%)
And now, the top stories on Friday:
1. It was all about oil on Friday. The big losers were oil companies, with heavy losses suffered by international giants and smaller US-based shale companies. We’ve got a full rundown here, but some of the big standouts were Statoil, down 12%, Whiting Petroleum, down 21%, and Oasis Petroleum, down 27%. The decline in oil companies comes after OPEC announced on Thursday that it would not cut production, a move some had expected the cartel to make in response to the declining price of oil that some have blamed on a global supply glut. In response to this news, oil prices fell more than 6% on Thursday, and on Friday West Texas Intermediate crude futures fell below $US68.
2. The big decline in oil prices has had people asking about the ramifications for US consumers, shale oil companies, and the budgets of major oil exporters that rely on this revenue to break even. But the longer term impact that has started to come into the conversation is future price shocks, which could result from a lack of supply if production declines sharply due to the recent downturn in oil prices.
3. And while future price shocks may be a ways away, a more immediate concern for companies are their breakeven prices, and these two charts from Citi highlight the breakeven prices for US shale producers and international oil companies. By and large, US shale production is still profitable with oil prices above $US60, while international companies have found projects make economic sense if they can sell their oil from $US90, though this potential is fading as futures markets make hedging more difficult.
4. The decline in the price of oil has been fast and furious, with oil prices falling more than 30% since June, but one hedge fund manager, Zach Schreiber, gave a presentation at the Ira Sohn investing conference in May and said that crude oil prices were going lower. A lot lower. Schreiber said that complacency among US oil drillers was brought about by steadily rising prices, and added that “complacency is a killer.” And now here we are.
5. Russian officials on Thursday said that Russia could handle oil prices declining to $US60 a barrel, but the market isn’t so sure, as the Russian ruble collapsed to a new low against the dollar on Friday, with one dollar buying nearly 50 rubles. Earlier this year, this rate was closer to 35.