Oil Continues Higher
Crude oil futures continued to rally during early Thursday trading to 3 ½ year highs, following a drop in U.S. inventories. Front month Crude is up 2% in the last 5 trading sessions, and 7% in the last 20. There appears to be a solid foundation of supportive forces is this market as of late. Refinery runs have remained strong, and U.S. oil inventories have only climbed by a total of three million barrels so far, compared to over 50 million barrels a year ago. Weekly U.S. gasoline demand hit the highest levels ever seen in April, beating the typical demand levels we usually see in the summer months of June, July, and August according to the Oil Price Information Service. The EIA also reported that gasoline demand hit a record of 9.857 million barrels a day last week.
Meanwhile, OPEC has remained strongly committed to shoring up production for higher prices. In recent briefings, Saudi officials have expressed their intent to see crude prices at $80-$100 a barrel.
Oil: Set to Spike?
Oil prices are at three-year-highs, and may be about to rise further. JPMorgan strategist John Normand wrote Friday that Brent oil could spike to $80 or more if the U.S. and European Union reimpose sanctions on Iran, and as Wester powers appear to be ready to expand the scope of the Syrian civil war. A possible decision in May on Iran sanctions may be “the start of a process that maintains low-intensity stress on oil markets that can deliver higher prices and above-average volatility,” he wrote, comparing it to the Arab Spring of 2011, rather than the major oil spikes of 1973, 1979, and 1990. His forecast follows others in the market calling this a good time to invest in energy.
Net bullish positions in Brent futures reached a record in the week ended April 10.
U.S. Stocks Near Correction Territory
At the time of writing this, U.S. stocks are down sharply midday Monday, with the Nasdaq (NQ.M18) posting numbers below the start of the year. Tech stocks extended their decline from last week, with some of the market-leading large-cap internet & tech companies leading the market down. Tesla fell about 5.5% after the NTSB said that it was not happy with the way the company revealed information about a fatal car crash. Following this, CEO Elon Musk tweeted an April Fool’s joke about the company going bankrupt, after the company’s stock already fell 22% in March. The Nasdaq Composite Index is now down around 9.9% from its 52-week high, only 0.1% away from being considered in correction territory. The S&P 500 isn’t holding together much better either, with all 11 of its sectors posting losses on the day, with most of them losing more than 2%. Front-month volatility is also up over 10% on the day, bringing yet another bout of high intraday volatility.
Stocks Attempt to Recover
U.S. stock indices are marginally higher in early Thursday trading, after economic releases on jobless claims and manufacturing data showed that the U.S. economy has remained healthy. Traders may be looking for some relief after a 3 day slide in U.S. stocks, following President Trump’s recent comments about taking a harder stance with some of our biggest international trade partners. Trump said yesterday that he would like to see his administration shrink the U.S. trade deficit with China by $100 billion. He said on Tuesday that he wants to impose close to $60 billion in tariffs on Chinese imports. Today, he tweeted that Canada runs a trade surplus with the US, when it is in fact the opposite.
The positive forces in the market today appear to be U.S. economic releases. Initial jobless claims declined by about 4,000 to 226,000 in the week ended March 10, holding onto a 50-year low. Both the Philadelphia & New York Fed manufacturing indexes were above zero, indicating better conditions. Both districts showed a continuance of high input prices.
U.S. Equities Rally
US stocks have been mostly higher on Monday, with the Dow Jones futures rebounding from a four-day losing streak as traders seemed to ignore the implications of Trump’s recent trade war comments and instead set sights on recent positive economic developments. Stocks took substantial losses last week, with the Dow losing 3%, the S&P 500 2%, and the Nasdaq 1.1% as Trump said that he will impose a 25% tariff on steel imports and 10% tariff on aluminum.