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Oil Prices Are Coming Back Down. Energy Stocks

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DiscoverGold   Wednesday, 09/18/19 07:09:49 AM
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Oil Prices Are Coming Back Down. Energy Stocks Are Falling
By: Barron's | September 17, 2019

After the largest single-day increase in oil prices in more than a decade on Monday, crude futures fell sharply on Tuesday.

Brent crude, the international benchmark, slumped 4.6% to $64.87 in Tuesday morning trading. West Texas Intermediate futures dropped 3.8% to $59.52. Both had gained more than 14% on Monday.

A Saudi oil official told Reuters that the country was likely to fully restore production within weeks, a more optimistic timeline that some expected.

The rapid shift in prices was predictable, argued Ryan Giannotto, director of research at GraniteShares, given the enormous move on Monday and the fact that the change was based on one unusual event.

“It’s an excellent short opportunity,” Giannotto wrote in an email to Barron’s. “Markets essentially overshot on an idiosyncratic shock. Unless that shock builds, the trading pressure rapidly dissipates. It is one of the most time-honored phenomena in trading, and yesterday gave markets a once in a decade opportunity with WTI, and a once in a century opportunity with Brent.”

It’s another reminder that “markets are very bad at pricing extreme situations,” he said.

News could change the dynamic, however.

Investors aren’t sure how quickly Saudi Arabia will be able to restore oil production, but that could change soon. Saudi energy minister Prince Abdulaziz bin Salman is expected to provide an update at around 1 p.m. ET on the state of Saudi oil infrastructure. The attacks knocked out more than 5 million barrels of production capacity, or 5% of global supply.

In advance of that news conference, it’s clear that investors have gotten more bearish, particularly regarding U.S. oil stocks that rose rapidly on Monday. One of Monday’s double-digit gainers, Whiting Petroleum , was down 10% in early trading on Tuesday. Continental Resources , another big gainer, was off 9%.

Bigger, more diversified energy stocks, fell less, including Exxon Mobil (XOM) down 0.6%. The Dow Jones Industrial Average was trading flat.

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