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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