Investors are selling oil again. Here's why
Posted January 7, 2020 7:03 a.m. EST
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With no clear sign of how Iran will retaliate against the US killing of top general Qasem Soleimani, traders are taking a breather.
What's happening: Risk-taking still looks muted, but global investors have resumed buying stocks. Interest in safe haven assets like gold and the Japanese yen has leveled off. Brent crude, the global benchmark for oil prices, is back near $68 per barrel after spiking close to $71 on Monday.
Investors are shaking off the volatile political environment in part by pointing to how markets responded to the last big spike in tensions in the Middle East.
Remember: In mid-September, the United States blamed Iran for a missile strike on Saudi Arabia that briefly took out roughly half of the kingdom's oil production. Oil prices shot up nearly 13% above $68 on news of the attack.
But by early October, Brent crude was back below $58 a barrel, as the Saudis quickly got production back up to speed and traders felt confident, thanks in part to massive quantities of shale flowing out of the United States, that the world remained awash in oil.
Fast forward: Analysts are pointing to this sequence of events as evidence that oil prices won't stay elevated for long.
"To some extent, markets are used to turbulence in the Middle East. It usually hurts global confidence, growth and markets only if it drives up oil prices significantly on a sustained basis," Holger Schmieding, chief economist at Berenberg, told clients Tuesday. "While we have to watch the risk, we do not expect this to happen."
Schmieding predicts that Saudi Arabia would be able to maintain the flow of oil to global markets "even in a more intense conflict." Plus, the global supply of oil "has become more elastic thanks to US fracking," he noted.
Not everyone is certain that history will repeat itself. "Markets are currently assuming that this does not get out of hand, but I am concerned that the whole of the Middle East has become a lot more complex in the last few months," Neil Dwane, portfolio manager at Allianz Global Investors, told me.
The best range for oil to stay in, in his view, is $55 to $75 per barrel. This level should keep prices in check for global consumers without causing inflation, while ensuring investment in the sector continues, he said.
Aston Martin shares tank on profit warning
Aston Martin stunned investors Tuesday by warning that its profit for 2019 would drop by about 45% despite healthy orders for its first-ever SUV, my CNN Business colleague Charles Riley reports.
The 106-year-old British company's stock dropped as much as 16% in London on Tuesday as CEO Andy Palmer pledged to take steps to get the business back on track after a "very disappointing year."
Big problems: The favorite automaker of fictional British secret service agent James Bond, Aston Martin has suffered from weak demand for some of its models, a global auto slowdown and uncertainty over Brexit following a 2018 IPO.
Investors have punished the stock. Shares have dropped more than 75% in the 15 months since their public debut in London.
The company said it was reviewing its plans for 2020 and confirmed it was still talking to potential investors about raising new funding. Following a $150 million bond sale last year, it also plans to tap an additional $100 million in notes that were conditional on the company receiving 1,400 orders for the DBX SUV.
Political connection: UK parliament returns Tuesday to debate Prime Minister Boris Johnson's Brexit deal with the European Union, which is expected to pass easily now that the Conservative Party has a clear majority. That should give companies like Aston Martin more clarity on the path forward.
"Since the election, we have a great degree of certainty, which is certainly welcome," Palmer told Reuters.
SmileDirectClub shares pop on Walmart deal
SmileDirectClub was one of the worst-performing IPOs of 2019. But the stock surged Monday after the company announced an exclusive deal with Walmart, my CNN Business colleague Paul R. La Monica reports.
Shares of SmileDirectClub, which makes clear plastic teeth aligners, closed up nearly 22% on the news that it will offer a line of oral care products to consumers, including an electric toothbrush and a tooth whitening system, via Walmart's nearly 4,000 US stores and website.
Remember: The company's stock has plunged because of concerns about intense competition in the dental care industry. SmileDirectClub has never posted a profit, and analysts expect it to lose more money in 2020. After going public in September at $23 a share, its stock now trades near $10 — even after Monday's rally.
The Consumer Electronics Show formally kicks off in Las Vegas.
The US trade balance for November hits at 8:30 a.m. ET.The ISM Non-Manufacturing Index, which provides a look at the US services sector, posts at 10 a.m. ET.
Coming tomorrow: Constellation Brands, Walgreens and Bed Bath & Beyond report earnings.