Displaying items by tag: Commodities

(Houston)

The commodities market is taking a wallop across the board today. It seemed to start earlier this week with oil dropping on fears over weakening Chinese GDP. Weaker growth would mean less demand for oil. Now, those fears have spread across most of the commodities market, with metals currently selling off strongly on the same fears. The renewed selling follows losses nearing 20% in industrial metals over the last month.

FINSUM: Remember that commodities markets are often a leading recession indicator, so this data does not bode well. Though in this case, it seems to be GDP data leading commodities, which is a bit back-to-front.

(Houston)

The oil market is continuing to experience some deep tremors after a great year. The oil benchmark dropped another 1% yesterday, bringing prices down to their lowest level in three months. After months of rising on concerns of weak output, the market is plunging on the threat of oversupply, especially from Russia and OPEC countries. Additionally, the IEA put out a report saying it saw global oil demand falling, another factor which weighed on the market. In addition to worries about rising supply and weakening Chinese GDP, Commerzbank commented that “The unexpected increase in U.S. crude oil stocks by 629,000 barrels reported by the API is generating headwind, as is a sharp rise in Russian oil production”.

FINSUM: It is starting to feel like the tide might really be turning on the oil market, which has had a great 18 months.

(Houston)

The oil market has been doing very well for the last year and a half or so, and has performed especially strongly in 2018, outperforming every major asset class. However, US oil prices fell over 4% yesterday on growing fears of a boost in supply, following a 5% drop last Wednesday. Most of the gains in the market over the last 18 months have been because of coordinated supply cuts by world oil powers. However, while there still are some supply constraint issues on the table (e.g. US sanctions on Iran), the increasing worry is that production may rise more than expected, which would bring prices back down. Further, the US is indicating it may start to use some of its strategic oil reserves in order to avoid another sharp move higher in prices.

FINSUM: To be honest, we have been surprised by how well OPEC has been able to hold the output cut alliance together, so we really should not doubt their ability to continue to do so. That said, we do see at least a plateau coming in prices.

(Houston)

The energy market has been doing well and some argue that the world is in the middle of an oil shock, or a condition where prices are very elevated because of a lack of supply. With that in mind, Goldman Sachs has published a piece choosing a couple stocks for investors to play the current oil market. The two stocks are Chevron and Canadian Natural Resources. Both have been laggards recently, but that helped them get the “Buy” rating from Goldman. The bank does not doubt Chevron’s ability to execute (unlike the market), and thinks that the announcement of some new projects will help propel the stock.

FINSUM: Hard to believe we could be in an oil shock when only recently it seemed we had an overwhelming glut.

(Riyadh)

Oil prices are currently falling. The reason is fear of a supply glut. After several months of coordinated output cuts between the world’s oil superpowers, OPEC and allies are considering boosting total oil output. There is some contention within the group as to how much to boost production, but increased supply looks highly likely when the cartel meets tomorrow in Vienna. The spark for losses was news that Iran, which had been a hard-line critic of higher output, said it would be willing to accept a modest rise.

FINSUM: Prices have risen because of falling output in Venezuela and fears of a total supply shortage. However, that can be wiped out with the stroke of a pen. We expect prices will moderate.