Crashing crude may blow a $1.6 trillion hole in the global oil sector, annually

Dec 14, 2014 9:36 a.m. ET

NEW YORK (MarketWatch)—Talk about an oil spill. The spectacular unhinging of crude oil prices over the past six months is weighing mightily on the U.S. stock market.

And while it may be too early to abandon all hope that the market will stage a year-end Santa rally, it appears that if Father Christmas comes, there’s a good chance his sleigh will be driven by polar bears, instead of gift-laden reindeer.

Wall Street’s gift: a major stock correction.

Indeed, the Dow Jones Industrial Average DJIA, -1.79%  already endured a bludgeoning, registering its second-worst weekly loss in 2014, shedding 570 points, or 3.2%, on Friday. That’s just shy of the 579 points that the Dow lost during the week ending Jan. 24, earlier this year. It’s also the second worst week for the S&P 500 this year SPX, -1.62% which was down about 58 points, over the past five trading days, or 2.83%, compared to a cumulative weekly loss of 61.7 points, or 3.14%, during the week concluding Oct. 10.

But all that carnage is nothing compared to what may be in store for the oil sector as crude oil tumbles to new gut-wrenching lows on an almost daily basis. On the New York Mercantile exchange light, sweet crude oil for January delivery settled at $57.81 on Friday, its lowest settlement since May 15, 2009.

Moreover, the largest energy exchange traded fund, the energy SPDR XLE, -1.86% is off by 14% over the past month and has lost a quarter of its value since mid-June.

The real damage, however, is yet to come. By some estimates the wreckage, particularly for the oil-services companies, may add up to a stunning $1.6 trillion annual loss, at oil’s current $57 low, predicts Eric Lascelles, RBC Global Asset Management chief economist.

Since it’s a zero-sum game, that translates into a big windfall for everyone else outside of oil players.

In his calculation, Lascelles includes the cumulative decline in oil prices since July and current supply estimates of 93 million barrels a day. It’s a fairly simplistic tally, but it gets the point across that the energy sector is facing a serious oil leak. Here’s a look at a graphic illustrating the zero-sum, wealth redistribution playing out as oil craters: Source and more

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Posted on December 14, 2014, in Arabian Peninsula, Bakken Formation, Eagle Ford Shale, Gulf of Mexico, Oil, Permian Basin, South Texas, Tuscaloosa Marine Shale, United States and tagged , , , . Bookmark the permalink. Comments Off on Crashing crude may blow a $1.6 trillion hole in the global oil sector, annually.

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