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Wall Street Jumps as Global Oil Prices Extend Rally

By Markets FOXBusiness

It was another oil-fueled session for Wall Street Monday as stock markets moved sharply higher and oil prices rallied.

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The Dow Jones Industrial Average was 226 points higher, or 1.38% to 16618. The S&P 500 jumped 27 points, or 1.44% to 1945, while the Nasdaq Composite jumped 66 points, or 1.47% to 4570.

All 10 S&P 500 sectors were in positive territory as energy, materials, and industrials led the way higher.

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Global crude oil prices kicked off the week on a bright note as they lurched higher, helping the U.S. stock market find a reason to rally.

Reuters reported the International Energy Agency, in its medium-term outlook outlined expectations for American shale production to fall by 60,000 barrels per day in 2016, and 200,000 next year. The forecast came on the heels of data that showed U.S. rig counts fell to the lowest level since 2009.

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“This massive cutback in rigs is taking its toll as we have seen 123 oil rigs idled just since the beginning of this young year. That means U.S. output is in the process of topping and the price of oil is in the process of bottoming,” Phil Flynn, senior market analyst at the PRICE Futures Group and FOX Business contributor said in a note.

In recent action, West Texas Intermediate crude prices jumped 6.21% to $31.48 a barrel, while Brent, the international benchmark, gained 5.09% to $34.69 a barrel.  

Despite the pickup, Michael Block, chief strategist at Rhino Trading Partners, said the move higher, as has been the case in several recent trading sessions, is likely short-lived.

“Iran is still talking up more production, but that’s OK because they and Iraq need to regain share lost to war and sanctions…that works until someone cheats on whatever freeze is agreed upon next week. I hate to be cynical, but this won’t work,” he said in a note to clients.  

Further, Block said he could see WTI, the U.S. benchmark, hitting $40 a barrel, but not moving much higher from there.

Last week, the markets were flooded by expectations that the Organization of the Petroleum Exporting Countries (OPEC) would put a freeze on the cartel’s output at January levels. Venezuela, Russia, Saudi Arabia, and Qatar were involved in floating the idea early last week before Saudi Arabia eventually walked back comments, saying it wasn’t ready to trim its output, and Iran stayed mum on whether it would be willing to join the effort, which would help put upward pressure on prices hovering at multi-year lows.  

Elsewhere in the market, traders ditched safe havens as they rushed to riskier assets like equities. Gold prices slipped 1.76% to $1,209 a troy ounce, as the yield on the benchmark 10-year U.S. Treasury bond rose 0.012 percentage point to 1.760%. Treasury yields move inversely to prices.  

Meanwhile, the U.S. dollar gained 0.82% against a basket of global currencies on Monday, and as the euro dropped 0.98% against the greenback. The euro’s pressure came after weekend developments over a looming effort for the United Kingdom to exit the eurozone. IG senior market analyst Chris Beauchamp said in a note that the pound is down to four-week lows against the dollar as the market decides U.K. currency isn’t the best place to be for now, despite IG’s so-called Brexit binary shows a 67% chance the nation will stay in the EU.

“Given that we have many weeks of this ahead of us, such falls in the pound are either a monumental value opportunity (if you think the gloomy case is excessive) or a chance to ride the speculative wave lower,” he said.  

Over the weekend, London Mayor Boris Johnson said he backs the Brexit, though Prime Minister David Cameron remains on the opposite side of the line.  

Despite the ongoing chatter, European equity markets pushed higher on Monday. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, jumped 2.19%. The German Dax gained 1.98%, while the French CAC 40 added 1.79%, and the U.K.’s FTSE 100 rose 1.47%.