Oil Prices Plunge: Why Now?
Oil dropped below $90 per barrel this morning, after the International Energy Agency announced that it will release 60 million barrels of oil next month "in response to the ongoing disruption of oil supplies from Libya." As part of the plan, the US will open its Strategic Petroleum Reserve -- to the tune of 30 million barrels. Crude oil prices plunged five percent on the news, approaching $90 per barrel, dragging down big energy stocks and the rest of the stock market too.
Hang on one second: NOW they release the oil? Seems strange that when crude was $20 higher at $114, the IEA didn't see the need for action. You might recall that back in May when oil was trading at those lofty levels, White House officials said that the administration was reluctant to be "totally reactive so that when the price goes up, everybody panics, and when it goes back down, everybody goes back to sleep."
The timing of this is just plain strange and conjures up the conspiracy theorist that lurks within. Yesterday, Federal Reserve Chairman Ben Bernanke acknowledged that the US growth is slowing down, but said that the central bank wouldn't act to further stimulate the economy. That news disappointed investors, who were hoping that BB would give them a little QE3 love; without that love, they sold stocks.
Economic reports released this morning only added to the economic slowdown anxiety: weekly jobless claims increased by 9,000 to 429,000, the biggest increase in a month and the 11th straight week above 400,000; New Home Sales fell 2.1 percent to a seasonally-adjusted annual rate of 319,000 (here's why housing stinks; and the Chicago Fed said economic growth remained below average in May.
So with the economy petering out, is this oil dump a back-door economic stimulus plan/QE3? If that was the intent, it's going to take a little while to work. But if oil stays at these levels for a little while, consumers will get more relief at the pumps -- I told you that gas prices were headed lower!
Today's equation for the market: slow economic growth + weak energy stocks = US stocks down
Stocks recouped much of their earlier losses, amid reports that Greece had reached an agreement on a five-year austerity plan with European Union and International Monetary Fund officials.
- DJIA 12,050: -59 points or 0.5 percent
- S&P 500 1283: -3 points or .3 percent
- NASDAQ 2686: + 17 points or 0.6 percent
- US 10-Year Bond: 2.925 percent
- August Crude Oil $91.02: -$4.39
