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These Factors Could Pressure the S&P 500 and Crude Oil

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Updated

The S&P 500’s performance 

Pressured by the drop in crude oil prices and energy stocks, the S&P 500 Index fell ~0.1% to 2,798.43 on July 16. The escalating trade war between the United States and China could also pressure the S&P 500 in the coming weeks. However, the expectation of strong second-quarter earnings could support the S&P 500.

Reuters estimates that these second-quarter earnings could rise 21.1% year-over-year. Nine of the 11 key sectors in the S&P 500 dropped on July 16.

The SPDR S&P 500 ETF (SPY) fell ~0.1% to $279.34 on July 16. SPY tracks the returns of the S&P 500 Index. The E-Mini S&P 500 futures fell 0.11% from the previous settlement in early morning trading on July 17.

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S&P 500’s sectoral performance 

The energy, materials, and healthcare sectors fell 1.15%, 0.8%, and 0.6%, respectively, on July 16. These sectors exerted the greatest pressure on SPY on the day. The energy sector accounts for ~6.18% of the S&P 500.

The energy sector reported the largest drop among the major sectors in the S&P 500. The Energy Select Sector SPDR ETF (XLE) fell ~1.15% to $75.38 on July 16. XLE represents the S&P 500 Index’s energy sector.

Crude oil

Brent oil (BNO) futures fell 4.6% to $71.84 per barrel on July 16—the lowest settlement since April 17. August WTI oil (USO) futures fell 4.2% to $68.06 per barrel on July 16, which was the lowest settlement since June 25. Oil prices tumbled as Libyan ports reopened and on the expectation of a rise in supplies from Russia, the United States, and Saudi Arabia.

Russian plans to increase crude oil exports from ExxonMobil (XOM) led the Sakhalin-1 project up to 266,000 bpd (barrels per day) in the third quarter. Previously, the output at the Sakhalin-1 project was capped at 200,000 bpd due to self-imposed supply cuts by major oil producers.

The Trump administration indicated that the United States would consider waivers of sanctions for some countries importing crude oil from Iran after November 4. Plus, France, Britain, and Germany were exploring ways to keep the Iranian nuclear deal alive.

A strike in Norway, as well as supply outages in Venezuela and Canada, could help oil prices. August WTI oil futures fell 0.3% from the previous settlement in early morning trading on July 17.

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Natural gas 

August US natural gas (UNG) futures rose 0.3% to $2.76 per MMBtu (million British thermal units) on July 16. Prices rose due to the expectation of steady demand over the next two weeks. August US natural gas futures contracts rose 0.6% from the previous settlement in early morning trading on July 17.

In this series

In this series, we’ll look at the Brent-WTI oil spread, the WTI Cushing-WTI Midland crude oil spread, and the OECD oil inventories.

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