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BUSINESSThursday 21 January 2016
Stocks avoid biggest losses, slide again as oil tumbles Johnson & Johnson
MARLEY JAY
AP Markets Writer
NEW YORK (AP) — U.S.
stocks slumped Wednes-
day as the price of oil suf-
fered its worst one-day
drop since September. A
huge sell-off earlier in the
day pushed the Standard
& Poor’s 500 index to its
lowest level in almost two
years.
Investors are worried that
low oil prices mean there’s
not that much demand for
fuel. That would be a sign
that growth in the global
economy is slowing down.
Stocks in the U.S. started
sharply lower, following
widespread selling over-
seas, and at one point the
Dow Jones industrial aver-
age fell as much as 565
points.
After a late recovery, the
Dow closed down 249.28
points, or 1.6 percent, to
15,766.74. The S&P 500 in-
dex fell 22 points, or 1.2
percent, to 1,859.33. The
Nasdaq composite, which
briefly turned positive in the
afternoon, lost 5.26 points,
or 0.1 percent, to 4,471.69.
U.S. crude dropped $1.91,
or 6.7 percent, to $26.55
a barrel in New York. That
was the biggest one-day
plunge for U.S. oil since
Sept. 1. U.S. crude is down
28 percent in 2016 and is
trading at its lowest level
since May 2003.
Brent crude, a benchmark
Shell expects 4Q profits to drop at least 40 percent vices, particularly brands
DANICA KIRKA
Associated Press
LONDON (AP) — Royal
Dutch Shell expects its
fourth quarter profits to
drop at least 40 percent to
between $1.6 billion and
$1.9 billion after a sharp
drop in crude oil prices, but
underscored its determina-
tion to press ahead with
the proposed mega-merg-
er with BG Group plc.
The Anglo-Dutch energy
giant said Wednesday it re-
leased the figures for share-
holders ahead of a vote
next week on the proposed
combination, a 47-billion-
pound ($69.7 billion) deal
widely seen as an effort to
adapt to lower prices. The
figures reported were on a
current cost-of-supply ba-
sis, the oil industry account- under $28 a barrel.
for international oils, fell 88 didn’t change much.
cents, or 3.1 percent, to
$27.88 a barrel in London.
James Liu, global market
strategist for JPMorgan
Funds, said demand for oil
hasn’t fallen off and the
Michael Capolino, right, works with fellow traders on the floor of the New York Stock Exchange,
Wednesday, Jan. 20, 2016. U.S. stocks slumped Wednesday as the price of oil suffered its worst
one-day drop since September.
global economy remains
relatively healthy. But com-
panies are still producing a
great deal of oil, so tremen-
dous stockpiles have accu-
mulated. While companies
started shutting down drill-
ing rigs and wells in late
2014 after prices started to
decline, production of oil
ing standard that takes into
account fluctuations in the
price of oil.
“Bold, strategic moves
shape our industry,” CEO
Ben van Beurden said.
“The completion of the BG
transaction, which we are
expecting in a matter of
weeks, will mark the start of
a new chapter in Shell, to
rejuvenate the company
and improve shareholder
returns.”
There have been concerns
about the deal’s viability,
given the collapse in oil
prices. Energy companies
are struggling to adjust to
an age of lower prices after
oil dropped to 12-year lows
this month. Brent crude, the
benchmark for North Sea
oil, traded Wednesday at
Liu predicted production
will keep falling and oil pric- get their money back. It’s
es will stabilize in the middle good news, however, for
of 2016, then start rising.
“I think that will alleviate
some market concerns,”
Liu said.
The falling price of oil is bad 8 percent, to $21.49 and
news for companies that
drill for oil and sell it, and
those companies have
slashed jobs and cut back
on work to reduce their
costs. Banks have lent bil-
lions of dollars to energy
companies to fund their
However, the BG deal will
boost Shell’s oil and gas re-
serves by 25 percent and
give it stronger foothold in
the fast-growing liquefied
natural gas market. BG sep-
arately released a state-
ment detailing strength in
its Brazilian and Australian
operations — results that
bolster the rationale be-
hind the deal.
Shell said streamlining and
integration from the BG
merger would include the
loss of 10,000 staff and
contractor positions across
both companies in 2015-
2016.
Capital investment for the
two companies is currently
expected to be $33 billion
— which would represent a
45 percent reduction from
a 2013 peak of combined
to cut about 3,000
work, and investors are medical device jobs
worried the banks won’t
MATTHEW PERRONE
TOM MURPHY
car owners and for com- AP Business Writers
panies that use a lot of fuel. (AP) - Johnson & Johnson
Energy stocks were pelted. said this week that it plans
to cut about 3,000 jobs
over the next two years as
the health care conglom-
erate works to restructure
its medical devices bus-
(AP Photo/Richard Drew) ness. The New Brunswick,
New Jersey, company said
Devon Energy lost $1.89, or that amounts to more than
2 percent of its global work-
Exxon Mobil sank $3.22, or force of around 127,000
4.2 percent, to $73.18. Fi- people and 4 percent to 6
nancial stocks were also percent of its employee to-
hit because banks could tal in medical devices.
lose billions on loans to oil The cuts come after a
and gas companies. Bank tough year for the health-
of America lost 55 cents, or care bellwether, which
3.9 percent, to $13.69.q has seen sales of its pre-
scription drugs, devices
and consumer medicines
squeezed by a weaken-
ing global economy and
unfavorable currency ex-
change rates.
“These actions recognize
the changing needs of
the global medical device
market,” said Gary Pruden,
chairman of Johnson &
Johnson’s medical device
unit, in a statement.
The restructuring focuses
on the company’s ortho-
pedics, surgery and car-
diovascular businesses.
It won’t affect consumer
medical devices, pharma-
ceuticals or consumer busi-
nesses. J&J has struggled to
revive sales of medical de-
like DePuy orthopedic im-
spending. plants and Ethicon surgi-
Shell is also selling assets, cal equipment. In October
and said preparations the company said device
were “well advanced” for sales dropped 7.3 percent
$30 billion in asset sales in to $6.1 billion in the previ-
2016-2018 — assuming the ous fiscal quarter. In the
deal is completed. same month, J&J sold its
“In addition to divestments, Cordis heart devices unit,
Shell has taken impactful which previously account-
decisions in 2015 to reduce ed for about one-quarter
longer term, low return up- of device sales.
stream positions, such as Wells Fargo analyst Law-
the exit from Alaska ex- rence Biegelsen noted
ploration for the foresee- that medical devices have
able future, cancellation been “one of the weaker
of Carmon Creek heavy oil performingbusinesses in re-
project and exit from shales cent years.”
positions in multiple coun- “As such, we believe that
tries,” van Beurden said. the restructuring should
The markets reacted badly be a positive step towards
to the news in early trading, driving longer term growth
with the stock price down of thebusiness and en-
just over 5 percent to 1,291 hance profitability over
pence by midmorning in time,” Biegelsen said in a
London.q note to investors.q