US stocks closed softer on Tuesday, with investors standing pat ahead of a likely interest rate hike the next day in the world’s biggest economy and as oil price declines over supply gluts dogged the market.
The S&P 500 fell 0.3% to 2,365, the Nasdaq Composite fell the same to 5,856 and the Dow Jones Industrial Average eased 0.2% to 20,837.
Unsurprisingly, the energy sector faced the heaviest selling, falling 1% on the back of a 1.1% fall in the price of US crude oil. Industrials and materials also posted declines.
Data last month showed rising OPEC compliance to crude output cuts, strategists at Goldman Sachs said on Tuesday, reiterating their view that the oil market rebalancing “is still progressing” with evidence of “strong demand over the past few weeks”.
Those comments came after a report from OPEC showed that Saudi Arabia lifted output last month raising concerns about the kingdom’s commitment to an oil output deal it struck along with non-members like Russia late last year. It also came as OPEC highlighted that non-OPEC nations were still pumping out more oil.
The West Texas Intermediate, a gauge of US oil prices, was down 0.9% to $47.99 – its lowest since late November.
But trading across the New York Stock Exchange markets was not entirely representative, on account of it being lighter on the day, coming in roughly 13% below the 30-day average, as a snow storm harassed New York.
The S&P Midcap 400 index closed down 0.4% at 1707 and led by Denbury Resources (NYSE:DNR) down 5.3% to $2.33, while the S&P Smallcap 600 ended down 0.5% at 829 – paring far deeper losses – and led by Adeptus Health Inc (NYSE:ADPT) down 36.2% to $1.48.
Early trading
US shares fell on Tuesday as OPEC’s prognosis of the oil glut upset energy prices while investors remained wary of taking positions in a weather-thinned market ahead of the Federal Reserve’s rate decision tomorrow.
The S&P 500 was down 0.6% to 2,360 — led by a 1.4% drop in energy stocks. The Dow Jones Industrial Average declined 0.4% to 20,803, while the Nasdaq Composite fell 0.6% to 5,837.
Volume was running about 25% below usual levels for this time of day, as a winter storm hit New York and the East Coast of the United States.
But the biggest collateral damage done to Wall Street was the energy sector, after the WTI dropped by 2% to $47.44 – its lowest level since late November.
Oil club OPEC raised its 2017 estimates for oil production from outside of the cartel as US shale drillers ramp up activity in response to higher prices, underlining the threat to the group’s attempts to balance the market.
Non-OPEC oil supply is now projected to grow by around 400,000 barrels a day this year to average 57.7mln b/d, OPEC said in its monthly market report. That marks a 300,000 b/d increase on its total forecast just one month ago and comes after a near 10% drop in prices so far this month, as investors worry about shale’s potential to overwhelm the cartel’s own supply cuts pledged last year.
Despite OPEC’s broad compliance with a global agreement to curb supplies, oil stockpiles stand well above their five-year average at more than 3bn barrels as production elsewhere ramps up and inventories remain bloated.
Last week oil prices plunged amid increasing anxieties among traders and analysts about how effective any production cuts will be to restoring the oil market to balance. Hedge funds reduced their bullish bets on the oil price.
Oil stocks dominated the decliners on the S&P 500, led by Marathon Oil (NYSE:MRO), down 5.9% to $14.91, Transocean Inc (NYSE:RIG) down 5.4% to $11.93 and Chesapeake (NYSE:CHK) down 4.8% to $5.08.
The S&P Midcap 400 also sagged by 0.9% to 1698 and led by Denbury Resources (LON:DNR) down 7.9% to $2.27 and Superior Energy Services (LON:SPN) down 7.3% to $13.16.
The S&P Smallcap 600 dropped by the most, 1.1%, to 824 and led by Adeptus Health Inc (NYSE:ADPT) down 35.8% to $1.49 on brisk business of 1.5mln volume, which is almost as much as the 1.8mln daily average volume.
Pre-Open
US stocks are set to open softer on Tuesday after producer prices data came in stronger than expected while a rate hike on Wednesday is fully priced in, as traders battled into work under snow blizzard storm conditions.
The S&P 500, Dow and Nasdaq Composite are all seen opening 0.3% lower. But buttressing declines is the dollar which was firmer against sterling after investors reacted to the latest Brexit developments.
The British Parliament has passed a bill that will allow Prime Minister Theresa May to launch talks to leave the European Union.
May is expected to trigger the official start of negotiations before the end of March.
The Fed’s two-day rate meeting starts today.
Helping it make up its mind, or rather presenting the case for a shorter gap to the next hike but one, US producer prices data came in stronger than expected at 2.2% year-on-year to February versus a forecast 2% advance.
A major snowstorm hit the East Coast of the US and has put 31 million people under a blizzard warning. But it's business as usual at the New York Stock Exchange where “business continuity plans” are in place. It wasn’t expected to be a repeat of Superstrom Sandy which closed the bourse for two days five years ago.
Oil prices will also be in focus Tuesday when oil cartel OPEC releases its monthly market update.