US Stock Market Overview – Stocks Drop, Energy Bucks the Trend after Drone Attack

Crude oil prices surge 14% buoying energy shares
David Becker
One Less War Hawk

US stock prices traded under pressure on Monday following Saturday’s attacks on the Saudi oil infrastructure. Approximately 5.7-million barrels of oil were taken offline, which is approximately 5% of total global production. Intelligence points to petroleum coming back online in approximately 3-weeks which would reduce total OECD inventories by 15%. Oil prices surged on the news and rallied more than 14% on Monday. The VIX volatility index rebounded, rising 6.7% on Monday, after declining for 7 of the best 8-trading sessions.

Sectors were mixed, with energy surging rising nearly 6%. Oil producers and developers were the best performers. Oil services and refineries also outperformed. The XOP ETF had its best performing day, rising 11.5%.

The attacks overshadowed the Fed meeting which is scheduled for Wednesday. Expectations are for a 25-basis point cut in interest rates. This attack might be the catalyst that pushes the Fed to cut 50-basis points. US yields have backed up 30-basis points over the past two weeks.

The US Points to Iran as the Masterminds of the Petroleum Attacks

Currently, oil prices have placed a premium for the lack of Saudi oil on the market. If the US and Saudi Arabia plan a counteroffensive against Iran, oil prices could move much higher. American officials say intelligence indicates that Iran was the staging ground for a debilitating attack on Saudi Arabia’s oil industry. Both countries are not in the process of determining responses. The assessment comes as President Trump raises the prospect of the US and Saudi Arabia joining forces to launch a retaliatory strike on Iran. Such a move could quickly broaden into a regional conflict. This could generate more volatility in the market and buoy gold prices. With global economies feeling the pinch of the trade tariffs, higher oil prices could generate significant instability in the capital markets.

The Trump administration said that Iraq wasn’t used to launch Saturday’s attack. The US has already dismissed a claim by Houthi militants in Yemen that they sent 10 drones to attack the Saudi oil sites, which crippled the kingdom’s petroleum industry. President Trump warned on Sunday that the U.S. was “locked and loaded,” and prepared to strike when America and Saudi Arabia identified who was responsible.

 

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