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Oil rallies on OPEC shock (0:30) investors preparing for Fed policy decision (3:12) Mega-cap tech earnings (4:14)
Transcript
Wall Street’s major averages closed lower on Tuesday after the United Arab Emirates announced its departure from OPEC, effective May 1.
The benchmark S&P 500 (SP500) lost -0.5%, while the tech-focused Nasdaq Composite (COMP:IND) ended down by -0.8%, and the blue-chip Dow (DJI) handed back 0.1%.
Gold futures fell to the lowest in more than four weeks on Tuesday as U.S. crude oil prices climbed above $100/bbl, exacerbating concerns over the inflationary impact of higher energy costs as U.S.-Iran talks remain at an impasse.
President Trump reportedly is unhappy with Iran’s latest proposal on resolving the Middle East war, dampening hopes for a resolution to the conflict that has disrupted energy supplies and sparked inflation.
Geopolitical tensions remained in focus after Iran’s Foreign Minister arrived in Russia, where he is expected to meet President Vladimir Putin, even as negotiations with the U.S. reached a stalemate over the weekend.
Tensions between the United Arab Emirates and OPEC have been building well before Tuesday’s sudden departure of the group’s third-biggest producer, having chafed for years at OPEC’s per-country production quotas that are intended to limit global supply and lift oil prices.
Saudi Arabia and the U.A.E. are the cartel’s two swing producers that have excess capacity to ramp up output, with the U.A.E. capable of producing 1.4M bbl/day more than OPEC’s quota.
While OPEC’s control over prices has waned, its quotas have hurt the U.A.E., which has a lower breakeven price than other OPEC members, and the country has clashed with the Saudis at times because it has been forced to bear a disproportionate share of the cartel’s production cuts.
On Tuesday, the bearish news of the U.A.E.’s exit from OPEC was outweighed by the continued stoppage of transit through the Strait of Hormuz.
“In normal times, this would have been very bearish news for the oil market and sparked a sizeable selloff,” Again Capital’s John Kilduff said.
Front-month Nymex crude (CL1:COM) for June delivery jumped 3.7% to its highest close in three weeks and front-month Brent crude (CO1:COM) for June delivery added 2.8% to its highest settlement value since March 31.
The shortages of crude oil and liquefied natural gas caused by the shutdown of the Strait of Hormuz likely will drag on for months and possibly into next year, Shell (SHEL) CEO Wael Sawan said Tuesday.
“We are talking about roughly 900M barrels that have not been produced in the last couple of months and that has been replaced essentially by stock drawdown,” Sawan told Bloomberg in an interview, adding that many regions are facing relatively low levels of oil and natural gas supply, with growing conversations about demand curtailment and fuel switching.
Investors are preparing for the upcoming Federal Reserve policy decision on Wednesday, where interest rates are widely expected to remain steady within the current 3.50%–3.75% range.
The central bank decision is being made as Powell helms his last meeting with Fed Chair nominee Kevin Warsh waiting in the wings. President Donald Trump continues to pressure the Fed head to cut rates. And the Federal Open Market Committee will be struggling to assess whether the oil shock triggered by the Iran conflict will bleed into underlying inflation trends.
While the rate decision itself may hold little surprise, market participants are expected to focus intently on commentary from Jerome Powell during his post-meeting press conference.
Attention is likely to center on key themes shaping the economic outlook, including oil prices, artificial intelligence, tariff-related pressures, inflation trends, and broader uncertainty. Ultimately, the tone and nuance of Powell’s messaging may prove more influential than the rate decision itself in guiding near-term market sentiment.
Mega-cap tech earnings are due out after the close, with Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) (GOOGL) and Meta (META) all reporting. In addition to whether the companies beat EPS estimates, investors will be on the lookout for cloud growth, AI infrastructure spend, margin compression, ad demand and if management teams can prove that the huge AI buildout is turning into revenue, power demand and future margin pressure.
U.S. wheat futures rallied to the highest in nearly two years Tuesday, as drought in U.S. Plains wheat fields pressures yields while soaring fertilizer costs have caused farmers to trim planting of nutrient-intensive crops such as grains.
CBOT wheat futures surged after the latest Crop Progress report from the U.S. Department of Agriculture said only 30% of the winter wheat crop is in good or excellent condition as of April 26.
U.S. March durable goods orders are due Wednesday morning after the release was rescheduled from April 24 to April 29. The headline number is expected to rise 0.4% sequentially, reversing from the prior month’s 1.3% decrease, according to the average economist estimate.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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