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Energy stocks tumble Monday on crude-price cuts

The catalyst for the drop in share prices can be traced to Saudi Arabia’s decision to slash crude prices.

The U.S. oil and gas sector slumped Monday, with energy stocks falling sharply alongside a decline in oil and natural gas prices.

The Energy Select Sector SPDR Fund XLE , a gauge for energy stocks, dropped nearly 3%, signaling a broad-based retreat from last week’s 1% gain. Industry-specific ETFs, including the SPDR Oil & Gas Exploration and Production ETF XOP and the VanEck Oil Services ETF OIH also recorded steep declines.

WTI crude prices plummeted by nearly 5% to $70 per barrel Monday. The catalyst for the drop can be traced to Saudi Arabia’s decision to slash crude prices across all regions for February, reflecting concerns over waning demand.

Concurrently, increasing oil production from both OPEC and non-OPEC countries has heightened the prospect of a market surplus. According to a Reuters survey, OPEC’s output in December saw an uptick of 70,000 barrels per day, culminating in a production rate of 27.88 million bpd.

In the natural gas arena, U.S. prices at the Henry Hub dipped as much as 6% to $2.77/MMBtu, retreating from a six-week peak of $2.90. This decline was attributed to forecasts indicating warmer weather and the adequacy of natural gas reserves that are 13% above the seasonal norm due to unprecedented domestic production.

Monday’s energy stock laggards

Security namePricePercent return
Schlumberger SLB $49.66-4.24%
Targa Resources TRGP $82.17-4.22
Halliburton HAL $34.47-4.18
Baker Hughes BKR $32.17-3.74
Marathon Oil MRO $23.56-3.40
Exxon Mobil XOM $99.18-3.36

‘Own commodities in 2024,’ says ex-Goldman commodities chief

Despite the current downturn in energy stocks, Jeff Currie, former commodity research chief at Goldman Sachs, provided a bullish outlook for the commodity sector during an interview on Bloomberg TV.

The fundamental setup for commodity markets is more favorable compared to the previous year, Currie said. He highlighted that if central banks shift toward interest rate cuts, it could pave the way for a robust performance in 2024, dubbing it a “classic ‘own commodities’” scenario.

Currie emphasized that demand for raw materials is soaring, inventories remain low, and production capacity is virtually maxed out. He earmarked copper, in particular, as having substantial potential for price increases after a stagnant 2023.

The Invesco DB Commodity Index Tracking Fund DBC  tumbled 2.3% on Monday, touching its lowest point in nearly two years, with prices hovering well below key long-term moving averages, which could be indicative of broader commodity market pressures.