…Oil Stocks Plunge As Divergence With Oil Prices Ends

Widespread protests in China over Beijing’s zero-COVID policy and uncertainty over Chinese oil demand have sent energy markets into a tailspin.

Stock reports recorded that energy stocks shed nearly 2% during Monday trading as crude oil prices tested the lowest levels of the year, breaking with a recent divergence that had seen energy stocks trend higher despite falling oil prices.

While energy stocks had been defying falling oil prices for the first time since 2006, that divergence now appears to be dissipating, one of the reports.

As of 12:53 EST on Monday, Exxon (NYSE:XOM) was trading down 1.96%, while Chevron (NYSE:CVX) was down 1.61%. Diamondback Energy (NASDAQ:FANG) was down nearly 3%, as was EOG Resources (NYSE:EOG).

Goldman Sachs, which a week ago shaved $10 off its oil price forecast for 2023, putting it at $100, said on Monday, “we do believe that oil markets will need to stabilize in order of the equities to continue to perform”, the Wall Street Journal reported.

Goldman has remained bullish on oil throughout the year, noting in its 2023 outlook that “We are tactically cautious, structurally bullish”.

On Monday at 1:06 p.m. EST, Brent crude was trading down 0.29%, at $83.42, while WTI was trading up 1.28%, at $77.26 per barrel.

The Dow Jones Industrial Average shed over a percentage point on Monday as well, as did the S&P 500 and the Nasdaq Composite. The market is responding to protests in China that have gone as far as to call for Xi Jingping to step down and back-and-forth analysis over the potential for Beijing to ease its zero-COVID policy and work towards economic reopening. 

“The negative headlines from abroad are putting pressure on domestic markets,” Charlie Ripley, vice president of portfolio management at Allianz Investment Management, told CNBC.
“I anticipate we’ll have more volatility and more activity in the markets as we go through the rest of the week, looking at the economic calendar.”

Meanwhile the drop in oil prices in reaction to fresh lockdowns in China is believed to be overblown as the effect on the country’s short-term oil demand is likely to be minor, energy consultancy Rystad Energy said.

Oil prices have come under pressure over the past few weeks as China, the world’s second-largest economy and biggest crude importer, battles a rising number of Covid-19 infections.
The agency notes that Brent crude, the benchmark for two thirds of the world’s oil, fell nearly 4 per cent on Monday after protests were reported in the country in response to a recent wave of lockdowns and restrictions.

“Oil markets may be misjudging news of China’s lockdown,” said Claudio Galimberti, senior vice president at the Norway-based consultancy.

The latest curbs “appear to be mimicking previous ones, with nationwide road traffic only marginally affected while selected provinces undergoing comparatively severe lockdowns try to suppress Covid outbreaks”.

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