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Oil stocks are tanking amid a broader market selloff, as Wall Street responds to stubbornly high inflation that is expected to lead to more Federal Reserve policy tightening.
With a New York Fed survey showing longer-term inflation expectations that indicate potential weaker growth and recession, Wall Street is showing less appetite for risk, while oil prices have shed nearly 6% today on concerns of China’s COVID lockdowns.
Exxon is down nearly 7.4% as of 2:00 p.m. EST, while Chevron has shed 6.47%, BP is down 5.8% and Shell has retraced 4.6%. Brent crude was trading at $105.7, down from $113 last week, and WTI was trading at $102.9, down over 6% from last week’s highs.
Downward pressure on oil prices Monday comes amid a strong dollar and renewed fears that China’s continuing lockdowns will dampen demand.
Oil has been extremely volatile, with the market unclear whether the threat to demand emanating from China’s lockdowns outweighs the European Union’s efforts to ban Russian oil and a Russian oil production decline.
For the past several weeks, oil prices have largely been responding immediately to headlines in this respect. An EU announcement that brings the bloc closer to implementing an oil embargo on Russia results in a large percentage increase in oil prices. Likewise, news indicating that China is not moving closer to easing COVID restrictions in its “zero-COVID” policy drags oil down, in combination with inflation data and Fed policy expectations.
The broader market selloff is also a response to China’s lockdowns. Stocks fell in Europe and Asia across the board Monday.
The Dow Jones Industrial Average had lost 447 points by 2:00 p.m. EST, while the S&P 500 had shed 2.53%, already having lost for five consecutive weeks. Oil stocks have buck this trend and outperformed the broader market recently.
Most traders are expecting a 75 basis-point hike at the Fed’s June meeting, Reuters reported, with key data coming on Wednesday in the form of the monthly consumer price index, which will be a barometer for where we are with inflation.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com