Casino Stocks, Oil Prices Tumble On China Lockdowns

Oil futures and casino stocks sank Monday on fresh Covid-19 news out of China. Natural gas prices bolted on the scheduled shutdown of the Nord Stream pipeline, cutting Russia's gas supply to Germany, amid already sky-high demand and tight supply.

On Monday morning, Macau — an administrative region in China and the world's largest gambling hub — began a citywide lockdown to combat rising coronavirus cases. Other than essential operations, including supermarkets and health care facilities, all other businesses have been ordered to close and residents required to remain in their homes. The restrictions will continue for at least a week.

This sent casino stocks tumbling early in Monday's market trading. Wynn Resorts (WYNN) fell 7% and Las Vegas Sands (LVS) dropped nearly 9%. MGM Resorts International (MGM), which has less exposure to Macau than its two competitors, was down 2% early Monday.

Casino Stocks, Oil Prices: All Eyes On China

Meanwhile, U.S. crude oil futures sank more than 3% to around $102 per barrel Monday. Shutdowns rippled from Macau out into other major cities in China beginning to impose new coronavirus restrictions. Along with Macau's lockdown, Shanghai, which recently ended a two-month lockdown, has identified omicron subvariant BA.5, which is considered the most infective version yet of the virus. Shanghai will begin performing mandatory Covid-19 testing this week.

At least six cities in China currently have widespread restrictions, according to Bloomberg. Others are contemplating whether to start testing campaigns and business closures.

Shanghai's previous lockdowns sent the global supply chain into disarray. It also made it much more difficult for China to meet economic growth goals, according to analysis by Fitch Ratings.

Investors are now growing wary that the city may be preparing for another lockdown, adding more instability to the markets and global economy, the Wall Street Journal reported Monday. Oil prices have also been volatile due to ongoing worries that a demand-sapping recession may be just around the corner.

Casino stocks including Wynnn Resorts and Las Vegas Sands are a long way from being market leaders. But they tend to be very sensitive to blips in China that could affect consumer behavior. Wynn and LVS stock have both been in downtrends since the U.S. launched its trade war vs. China in 2018. Wynn is almost 75% below its 2018 high. Las Vegas Sands has lost 61%.

Natural Gas Increases On Nord Stream Closure

U.S. natural gas prices shot up more than 10% Monday to $6.6 per million British thermal units, approaching a three-week high. Benchmark futures in Amsterdam dropped around 9% early Monday after Canada announced it would return a key turbine to Russia.

The turbine, built in Canada, had been returned to Montreal for repairs and became stranded due to sanctions on Russia after its invasion of Ukraine. In June, Russia's Gazprom had announced that supply from the Nord Stream pipeline would be limited by 40% due to the missing turbine.

Later Monday, European futures reversed its early price dip. LNG exporter Cheniere Energy (LNG) was down 3% Monday. LNG transporters Golar LNG (GLNG) and Flex LNG (FLNG) fell 4% and 2%, respectively.

Natural gas producer Devon Energy (DVN) fell 3%, while Range Resources (RRC) and EQT (EQT) were up 1%.

Nord Stream, which connects Russia's gas fields with Germany, will remain closed for annual maintenance until July 21. However, European leaders have signaled concern that the Kremlin could use the disruption to end supplies, triggering a full-blown energy crisis, the Wall Street Journal reports.

If Russia ends its gas flows following the Nord Stream maintenance, Europe would potentially reduce industrial output, driving broad-based price increases. Fitch Ratings estimates the shortfall in natural gas will not exceed 10% of annual European consumption.