Oil prices declined sharply on Monday, pulling back from last week’s rally as OPEC kingpin Saudi Arabia delivered its largest budget deficit in history.
Collapsing oil prices and an ongoing war in Yemen have weighed heavily on the oil-rich Saudi kingdom, which on Monday posted a record deficit of 367 billion riyals or $98 billion for all of 2015. Saudi Arabia, which relies on oil for more than three-quarters of state revenues, said revenues are down 23% compared to last year. The government also increased its spending by around 13% in the wake of falling price points and an ongoing war in Yemen.
Oil prices were down sharply after Monday’s opening bell. Global benchmark Brent crude fell $1.11 or 2.9% to $36.78 a barrel on ICE Futures Europe. The West Texas Intermediate (WTI) benchmark for US crude also fell $1.25 or 3.3% to $36.85 a barrel on the New York Mercantile Exchange.
Crude prices rallied around 9% last week, pulling Brent prices from 11-year lows. The rally also lifted US energy stocks nearly 5%, which supported the biggest rally for Wall Street in over a month.
US stocks were back on the defensive Monday. The Dow Jones Industrial Average was down more than 100 points or 0.6% in the morning session. The S&P 500 Index also fell 0.8%, pushing it back into negative territory for the year. The energy sector on the S&P 500 was down nearly 2%, extending its 12-month loss to more than 23%. Shares of materials companies also fell 1.2%.
Meanwhile, the technology-heavy Nasdaq Composite Index also fell 0.8%.
European stocks also traded lower. The German DAX fell 0.8%. The CAC 40 in Paris and IBEX 35 in Madrid were down more than 1%. The pan-European STOXX 600 was down 0.5%. London markets remained closed for the day.
Asian stocks experienced a volatile trading session. China’s CSI 300 Index plunged nearly 3%. Hong Kong’s Hang Seng Index was also down 1%. Meanwhile, Japanese markets traded higher, with the Nikkei Index adding more than 100 points or 0.6%.
Investors can expect choppy trading conditions this week amid much lower than normal trading volumes. Stocks typically perform well in the period between Christmas and New Year’s Day, a phenomenon known as the Santa Claus Rally.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.