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The Wild Ride Continues

Friday, Dec 7 2018
Market Talk

The wild ride continues this morning after cooler heads prevailed in Thursday’s session, helping energy and equity markets pull back from the brink of another major collapse. At multiple points during the day we saw refined products down more than 7 cents, only to recover each time and are starting the day with a wave of buying that had most contracts up around 2% as they awaited the OPEC announcement. US Equities saw a similar pattern, albeit for apparently different reasons, as the DJIA recovered most of its early 700 point drop by day’s end.

Conflicting headlines from the OPEC & Friends meetings continue to roil the energy markets, while equities seem to be breathing a sigh of relief that the arrest of a Chinese executive for violating US sanctions (on Iran) doesn’t appear to be stopping the talks of a trade truce.

Here’s an example of how unreliable the news wires are on the OPEC story:

* 07-Dec-2018 08:01:54 AM - OPEC SOURCE SAYS IRAN HAS AGREED TO OPEC DEAL

* 07-Dec-2018 08:02:58 AM - SECOND OPEC SOURCE SAYS IRAN HAS AGREED IN PRINCIPLE

*07-Dec-2018 08:09:22 AM - IRAN DELEGATE: IRAN HAS NOT REACHED AN AGREEMENT WITH OPEC

*07-Dec-2018 09:39:51 AM OPEC MEETING ENDS W/ AGREEMENT ON 1.2M B/D OPEC+ CUT: DELEGATES

Following that last headline of a 1.2 million barrel/day production cut energy prices have popped another 2-3 percent with most contracts now up 4-5% on the day.

The November jobs report showed an increase of 155,000 in non-farm payrolls, while the headline unemployment rate held steady at 3.7%, while the U-6 (aka the “real” unemployment rate) ticked up to 7.6%. Stocks moved higher in the wake of this report as it seems soft enough to keep the FED re-thinking their strategy for rate increases in 2019.

Notes from the DOE Weekly Status Report:

The headline draw of more than 7 million barrels of crude oil inventory (the first weekly decline in 11 weeks) sure seems bullish at face value, but when you dig deeper and notice that the weekly drop in imports accounted for 6.6 million barrels and the increase in exports accounted for another 5.3 million barrels. Suddenly the drop looks transitory, and even bearish, since we would have had a 5 million barrel build if the import/export flow had held steady to a week ago.

Remember the campaign slogan “drill baby drill”? Turns out that worked out better than its supporters did during the election 10 years ago as the US just became a net exporter of petroleum products last week for the first time in at least 45 years. Total oil & product imports were 8.8 million barrels per day last week, while total exports reached a new record north of 9 million barrels per day, with crude oil exports setting an all-time high north of 3 million barrels/day.

CLICK HERE for a PDF of today's charts

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