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The Wall Street Bank Selloff Yesterday Was More About Oil than Big Tech

Courtesy of Pam Martens

Closing Prices of Big Tech and Big Banks on September 8, 2020

Closing Prices of Big Banks and Big Tech on September 8, 2020. Stock Symbols: C, Citigroup; JPM, JPMorgan Chase; GS, Goldman Sachs; MS, Morgan Stanley; BAC,  Bank of America; AMZN, Amazon; AAPL, Apple; FB,  Facebook; GOOG, Alphabet, parent of Google; MSFT,  Microsoft.

By Pam Martens and Russ Martens

The mega banks on Wall Street joined the tech wreck yesterday as illustrated on the chart above. The selloff in these banks can be attributed to, primarily, the selloff in the price of crude oil – which suggests the banks will be forced to increase loan loss reserves as the threat of more bankruptcies among debt-strapped U.S. oil producers increases.

Domestic crude oil, known as West Texas Intermediate or WTI, had a $41 handle on Friday on the Nymex. Yesterday, that turned into a $36 handle – a decline of 12 percent from Friday. A WTI handle below $40 is panic-time for U.S. independent oil producers who are deep in debt and struggling to avoid bankruptcy.

The big summer driving season that was expected to boost crude demand was officially over the day after Labor Day. But, in fact, a big surge in demand from summer travel had never really materialized because a family doesn’t drive to a vacation destination if they’re afraid to stay in a hotel because of the pandemic. Add the decline in demand for jet fuel because people are afraid to breathe the air of strangers on airplanes and you begin to see a real problem with oil demand going forward.

Into this bleak outlook for the price of oil comes the always reliable “gift” from the Saudis in a time of crisis. According to an article at Bloomberg News over the weekend, Saudi Arabia has cut its price on crude to customers in both Asia and the U.S., raising the specter of a renewed oil price war between the Saudis and Russia. (See our reporting from March: What’s the End Game in the Saudi Oil Price War?)

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