Weakening Crude Oil Prices Rattle U.S. Equities

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Major U.S. indices fell Monday, pulled back by losses in the oil market. Cautious trading ahead of major monetary policy meetings also appeared to have had an impact on appetite for equities.

Rising U.S. gasoline stockpiles and an increasing number of active rigs are some of the factors cited for renewed weakness in oil prices. It appears that another round of oil supply glut is in the offing as more drillers bring their rigs online while demand for refined oil products hasn’t picked up strongly.

According to analysts at Barclays, the demand for oil in the current quarter is running at less than 30% of the demand rate witnessed in the same period last year. What “30% of demand” actually means is the question, as demand typically cannot be quantified in hard numbers, but only through qualitative priority lists relative to other goods. In any case, U.S. oil prices slid 2.4% to trade at $43.13 a barrel.

How the major indices performed

The Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) pulled back 0.4% on Monday after shedding 77.79 points to close the day at 18,493.06. The blue-chip index posted a string of gains and record closings in the past week amid upbeat U.S. economic data and corporate earnings.

Chevron Corporation (NYSE:CVX), which fell 2.5% and Exxon Mobil Corporation (NYSE:XOM), which fell 1.9%, led the Dow lower on Monday.

The S&P 500 (INDEXSP:.INX) shed 6.55 points on Monday, to pull back 0.3% from its closing mark on Friday. The Energy sector of the S&P 500 led the index lower on Monday. Energy stocks in the S&P 500 fell 2%.

The tech-weighted NASDAQ Composite (INDEXNASDAQ:.IXIC) lost 0.1% after shedding 2.53 points and closed the day at 5097.63.

Eye on monetary policy meetings

Federal Reserve officials are meeting today, and a recent string of upbeat U.S. economic data has lifted investor hope that the Fed could at least raise interest rates once in 2016. Although the Fed is not expected to immediately announce higher interest rates at today’s meeting, investors are hopeful that the monetary regulator will strike a positive tone on the health of the U.S. economy and set the ground for a rate review in the near-future.

Officials of the Bank of Japan are also meeting later this week to possibly discuss another round of easing measures. Investors will be closely watching the outcome of the two key policy meetings taking place on opposite sides of the world.

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