US Equities making record highs, Greece on the last straw and Oil stockpiles at an 80 year high – what is next ?

February 20, 2015

 

Weekly Statistics:

Today Week Ago Year Ago
20-Feb-15 13-Feb-15 21-Feb-14
S&P TSX 15,264.61 15,264.61 14,054.76
S&P 500 2,097 2,097  1,838.63
DJIA 18,019 18,019  16,154.39
OIL $52.65 $52.65  $91.48
USD vs CAD 0.8001 0.8001 0.9102
Gold $1,227.90 $1,227.90  $1,322.40

US equities finished the week at record highs for 2015 as news was released that Greece would receive a 4-month bailout extension from its creditors. THE DJIA and S&P 500 closed at 18,140 and 2,110 respectively. The extension removes Greece’s immediate worry of running out of money next month and a possible eviction from the Eurozone. The Greek authorities will present a base plan of a list of reforms by the end of Monday, February 23 and then the lending institutions will review it. The news came as a surprise after Germany rejected the Greek request for a six month extension to its bailout programme just yesterday. The German Finance Minister also mentioned today that Greece would not receive any new funds before it completed its bailout programme.

Crude Stockpiles Feb 2015

The US Energy Information Administration (EIA) released its inventory data early Thursday with a jump of 7.7 million barrels in the crude supply for the week ended February 13. It was more than double the 3.1 million barrel increase estimate by analysts. Even though there has been a continuous decline in the number of new oil rigs in the US, this has not reduced the production of oil in any way. There has been a 33 percent reduction in oil rigs in the past 10 weeks but US crude production is still rising because of improvements in technology that are offsetting companies’ spending cuts., According to the EIA, the US stockpiles of crude continued to grow to a total of 425.6 million- barrel, the highest level for this time of the year in at least last 80 years. The EIA has also forecasted that US oil production will increase 7.8% to 9.3 million barrels a day by the end of this year, the most since 1972.  The 80 year record stockpile and the increasing production will certainly put a cap on oil prices for some time and may drive prices lower. Although Gary Schilling, a Bloomberg columnist, speculated that oil may reach $10 or $20, the likelihood of oil reaching $10 is almost non-existent and $20 may be a short lived bottom in our opinion. Lower oil prices will mean more cash in the consumers’ pocket. As the Fed has already hinted that an interest rate hike maybe around the corner. Further declines in crude prices will likely accelerate rather than decelerate inflation and the chances for an interest rate hike.

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Canada’s changing economic picture with changing oil prices !

 

February 13, 2015

 

Weekly Statistics:

Today

Week Ago

Year Ago

13-Feb-15

06-Feb-15

14-Feb-14

S&P TSX

15,264

15,084

14,055

S&P 500

2,097

2,055

 1,839

DJIA

18,019

17,824

 16,154

OIL

$52.65

$52.00

 $91.48

USD vs CAD

0.8001

0.79837

0.9102

Gold

$1,227.90

$1,235.00

 $1,322.40

 

Last week both, US and Canadian, indices showed modest gains as the S&P 500 closed at an all time high of 2,097. A rally in oil prices, better-than-forecast economic growth in Europe, and better Canadian manufacturing sales for December attributed to this confidence and optimism. Canadian manufacturing sales rose at 1.7 percent, much better than 0.5 percent expected by economists. Lower oil prices and lower Canadian dollar will help Ontario and Quebec to strengthen their position in the national economy, as companies such as Linamar and General Motors make further investments (around $500 million each) in Ontario. Companies are becoming confident again about Ontario’s manufacturing economy and could create more jobs in the foreseeable future for the province. While recent jobs report showed Alberta still leading, we believe that this trend could change with Ontario and Quebec likely to lead job growth in Canada. Western Canada’s loss could be eastern Canada’s gain. Major oil companies like Husky, Suncor, and Canadian Oil Sands etc. have already cut their expenditures for 2015 and large job losses are expected along the way. The Canadian Association of Petroleum Producers has already forecasted a drop of 33 percent in spending by Oil and Gas companies. Though the prices of crude have tumbled by more than 50 percent from their recent highs in June 2014, the production has followed a reverse trend and has increased since. A US government report last week showed oil inventories at record levels which is creating a global oil supply glut. According to Citigroup, this oversupply could push the prices of oil to as low as $20 a barrel. However, a BMO research report shows that corporate budgets still reflect Crude at $61 a barrel. We believe that $61 is a very optimistic price, taking into account the global flooding of oil. Oil companies should brace themselves for a lower oil prices and more pain.

 

 

Source- Bloomberg, Zerohedge, Globe Investor Gold, CBC, Financial Post

Volatile oil prices and a strong economy – Is crude establishing a bottom ?

February 6, 2015

Weekly Statistics:

Today

Week Ago Year Ago
06- Feb-15 30-Jan-15

07-Feb-14

S&P TSX

15,083.92

14,673.48

13,786.50

S&P 500

2,055.47

1,994.99

 1,797.02

DJIA

17,824.29

17,164.950

 15,794.08

OIL

$52.00

$47.70

 $90.79

USD vs CAD

0.79837

0.7897

0.9064

Gold

$1,235.00 $1,283.80

 $1,267.10

Crude oil prices registered their largest two week gains in 17 years in during a volatile week. An additional factor that has impacted oil price volatility has been the volatility in the U$ over the past week. Brent oil prices rallied around 20% in the last six sessions and the gains could be attributed to the falling oil rig counts across the world and violence in Libya. Libya is a major oil producers in North Africa and any major violence is a catalyst for oil prices. According to oil services firm Baker Hughes, in the month of January, the number of oil drilling rigs worldwide and in the US fell by 261 and 199 respectively. The number of US rigs actively exploring or developing oil or natural gas fell to 1456, lowest since the week of March 2010. The picture clearly depicts the effects of falling oil prices on oil producers in the US. While this reduces the exploration of new oil properties based on changing margins it does not necessarily impact existing production that much which apparent from much higher than expected inventories earlier in the week.

http://www.wsj.com/articles/oil-holds-on-to-bulk-of-recent-gains-1423031216

The inventory buildup over the past several years or perhaps even decade will take a long time to deplete and in the medium term oil prices are most likely will test lower lows before establishing a base.

Meanwhile, Canada and the US surprised the economists with strong job gains. Canada added 35,400 jobs in January, taking down the unemployment by one-tenth of a percent to 6.6%. The recently announced layoffs of 17,600 and 350 at Target and Tim Horton’s have not been included in the above numbers. Despite a major correction in oil prices, Alberta is still the leader when it comes to job creation. The province added around 14,000 jobs in January, still maintaining its position as the fastest growing province. But with an $8 Billion hole in its economy because of declining oil prices, it’s unlikely that Alberta can maintain its economic status at current oil price levels. While US added 257,000 jobs in January, better than analysts forecast of 237,000, the unemployment figure rose to 5.7% from 5.6%. The rise in unemployment is due to more people participating in the labor market now, which shows  that the population is becoming more confident about the growth of US economy.

Source- Bloomberg, The Wall Street Journal, Globe Investor Gold, CBC, Financial Post