EQT, Halliburton Lead Energy Stocks Lower As Russian Oil Embargo And Price Cap Kick In

The United States Oil ETF USO traded lower by 1.7% on Monday on renewed concerns the Federal Reserve may not be able to navigate a soft landing for the U.S. economy.

What Happened? The ISM Services PMI rose to 56.5 in November from 54.4 in October, above expectations for a decline to 53.5. The higher-than-expected U.S. services activity comes after the Labor Department reported the U.S. economy added 263,000 jobs in November, ahead of economist expectations for 200,000 new jobs. The Labor Department also reported U.S. wages were up 5.1% year-over-year in November.

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The data showing a persistently hot U.S. economy have triggered concerns the Fed will not opt to reduce the pace of its interest rate hikes in December, as Fed Chair Jerome Powell recently suggested.

Why It's Important: WTI crude oil prices fell 1.6% to $78.68 per barrel and Brent crude prices dropped 1.4% to $84.38/bbl on Monday morning despite news over the weekend that OPEC+, which includes OPEC ally Russia, will be sticking to its plan to reduce output by 2 million barrels per day.

A new European Union oil embargo on Russia that was announced in May took effect on Monday as the Russian invasion of Ukraine enters its tenth month. In addition, the G7 Countries, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, announced on Friday that it would be capping the global price of seaborne Russian oil at $60 per barrel as part of its sanctions against Russia. The price cap is intended to limit Russian oil revenue while also allowing countries such as China and India access to much-needed energy.

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Energy stocks were trading mostly lower on a down day for the market on Monday. Here's a look at some of the biggest energy sector movers on Monday afternoon:

• EQT Corp EQT was down 7.3%.
• Halliburton Company HAL was down 5.3%.
• Marathon Petroleum Corp MPC was down 4.0%.
• Valero Energy Corporation VLO was down 3.6%.

Benzinga's Take: The energy sector is facing a bizarre scenario in which prices are falling even as OPEC cuts production. The price action in the oil market and the broad S&P 500 on Monday highlights just how much investors are concerned about the health of the global economy and the potential for the Federal Reserve to plunge the U.S. into a recession in the coming months.

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