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Oil prices drop after report that Saudi production could be restored in weeks

The Dow and US financial markets calmed down after an oil price surge that sent shock waves around the world.

Oil prices dropped sharply Tuesday, following Monday’s surge that sent shock waves around the world.

US oil futures dropped 4.6% to $59.98 per barrel, following a Reuters report that Saudi Arabian oil production would return to normal within two to three weeks. Investors took that as a positive sign about the impact of the weekend’s attacks on global oil supply.

Brent crude, the international benchmark, is down 5.8% at $64.99 a barrel. On Monday, oil prices shot up more than 14%.

US stocks were mixed in early trading. The Dow was some 60 points, or 0.2%, lower. Both the S&P 500 and Nasdaq Composite are barely in positive territory.

If oil prices fail to capture investors’ attention on Tuesday, focus may turn to the Federal Reserve, which is beginning its two-day monetary policy meeting that will culminate in its interest rate update on Wednesday.

Expectations for a quarter-percentage-point rate cut are at 64%, according to the CME’s FedWatch tool. That’s down from 92% last week.

A half percentage point cut is no longer priced in at all.

“There have been a variety of explanations for the change in expectations, be it stronger data last week, improved risk appetite, trade war optimism and even higher inflation potential following the oil price spike,” said Craig Erlam, senior market analyst at Oanda.

“Whatever the reason, it would be an interesting move from the Fed to hold at the meeting and one that would almost certainly draw the ire of President Trump, although they must be used to that by now.”

In US economic data, industrial production was stronger than expected in August.

Global equities ended lower on Monday. A rally in energy stocks following the oil price jump wasn’t enough to keep stocks from sliding.

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