Posts

Preparing for September

Image
Last week ended with another heavy statement from the Federal Reserve Chairwoman, Janet Yellen, addressing her fellow central bankers at an annual conference at Jackson Hole. Her words, "In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," were enough to inject a small dose of volatility into trading on Friday. Equities which had grown earlier in the day weakened in later trading, and the dollar jumped against foreign currencies.

Trading opened the week with Yellen's remarks in mind and a fresh batch of economic data in the morning. Income and inflation metrics met consensus estimates with earlier estimates revised slightly upward. Personal income and consumer spending inched upward in the last reported month showing signs that the economy has begun to stabilize, but a small increase will fuel pessimism surroundi…

Does Iranian Oil Still Matter?

Image
With a crude oil rallying looking to end out a hot summer, investors will be focused on OPEC supply reactions that will develop over the next couple of months. At the end of last week, WTI contracts are trading up 9.16 percent over the past month posting a year-to-date gain of 11.04 percent, and Brent contracts are up 9.55 percent and 14.58 percent respectively. Worries that a glut still remains have subsided, and instead, investors have piled behind a rally off of all-time lows that were seen at the beginning of the year. Now, eyes are on producers to see how they will react to the higher prices.

The rally came after seven strong bullish trading sessions that were supported by reports of an OPEC output freeze in consideration and a surprise 2.5 million barrel draw on inventory last week. Prices jumped from lows near the $40's into territory well above both the 50-day and 200-day moving averages. Volume was not as strong, but the clear direction of the trend did not lack convictio…

Oil is Going Down Again

Image
After a rough first quarter for oil in 2016, spot price trading has shown reduced volatility compared to the past year and a half. Supply movements have been relatively unsurprising in North America and other oil exporting nations. After the failure of the output freeze, OPEC's role changed from market leader to a market reactor waiting on true supply data to affect commodity traders. For the WTI spot price, a range of $40 to $50 developed with hopes of an upward breakthrough during the bullish summer months. June and July have passed and a different trend has set in. In its July meeting, the Federal Reserve was faced, once again, with tanking crude oil spot prices weighing on inflation. Now, August has come and oil is looking to break through a floor of $40. The EIA has revised their WTI projections from $48 a barrel by the end of 2016 to $44 a barrel. So why has this summer been so tame?


Based on data from the past five years, crude oil prices tend to peak in the first two month…

What Solar Impulse Means to the Energy Sector

Image
Today is a big day for solar energy as the world's first solar-powered airplane completed its circumnavigation of the globe. The journey marked the first time a plane has circled the globe without the need for fuel. Solar Impulse 2, the name of the craft that made the trip, was flown over 21,000 miles by two pilots rotating in the cockpit. After layovers in five different continents, the lightweight plane landed where it started in Abu Dhabi. Despite being wide than a Boeing 747, the solar-powered craft weighs only 5,000 pounds according to WIRED. Four 17.4-horsepower motors account for most of the weight, but when equipped with 17,000 photovoltaic panels, the machine becomes capable of flying at an average speed of about 47 mph. Yes, this plane is still painfully slow, but it introduces renewable energy potential to the air. The motors generated well over 10 MWh of energy an impressive feat that compares to some systems on the ground. Proving that energy can be successfully creat…

The Global Economy in Charts: The Bank for International Settlements' Annual Report

Image
In late June, the famed Bank for International Settlements produces their annual report for their financial year that ends at the end of March. The financial institution, based in Basel, Switzerland, is known for its international clientele and enduring history of excellent economic analysis. With 60 central banks included in its operations, the BIS has its hands in a group of nations that accounts for about 95 percent of the world's GDP. Hence, a report as extensive and in-depth as its annual publication is widely read and referenced among analysts. Its insights into monetary policy and the dynamics of the global economy are impressive. For that reason, I shall use the charts and graphs in the report to paint a picture of BIS's economic analysis as well as adding my own perspective along the way. Here is the global economy in charts.

All images and quotes can be found in this report.

"The global economy is not as weak as rhetoric suggests"


The media, analysts, and pu…

Predicting a Crash: Part Four

Image
So far in our investigation, we've looked at the existing fundamental condition of the global economy to support the proposition that a crash is coming. Debt levels have continued to rise since the financial crisis in 2008, and companies and households continue to increase their leverage despite mini-crashes in August of 2015 and January of 2016. The declining health of corporate and governmental balance sheets has endangered the survivability of many national stock markets which are faced with the risk of crisis similar to the Greek debt crisis that happened a couple of years ago. These debt conditions are allowed to prevail because of the loose behavior of the world's central banks, namely the Federal Reserve, the European Central Bank, and the Bank of Japan. Cheap credit has encouraged a growth in business loans, mortgages, auto loans, and credit card use that has surpassed the levels seen in the years leading up to the financial crisis. The conditions just described are no…

Fundamental Friday: 24 June 2016

Image
Crude oil: Crude oil fundamentals are reacting bullishly to the spike in refining this summer. Domestic production fell 39,000 b/d to 8.677 million b/d approaching another significant milestone at 8.5 million b/d. Since the beginning of the year, U.S. producers have cut 542,000 b/d worth of production as the squeeze on supply continues despite the stabilization of oil prices. Crude oil stockpiles continued their decline as well. With a drop of about 900,000 barrels, last week stockpiles were reported at 1.225 billion barrels. For the year, stocks are up about 48 million barrels but have declined in the past two months at a rate of about 13 million barrels.

Refinery data spiked to new highs this week as upstream operations heat up with the temperatures. Refinery inputs grew by 190,000 b/d to 16.505 million b/d reaching a new peak for the year. So far, June averages are well above the earlier 2016 months. Compared to last year, this week's refinery inputs are just 27,000 b/d lower, …