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Chart of the Day: OPEC Price, Output, and Revenue

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While doing some research for my book earlier this month, I came across an interesting graphic created by Dermot Gately in his paper "Lessons from the 1986 Oil Price Collapse." The chart provided a useful perspective on the equilibrium price of a barrel of oil during a period where OPEC sought to control the price by cutting production after it fell to lows in the 1970's. Revenue levels for the oil cartel declined to almost $50 billion endangering the health of many economies that relied on its natural resources for survival.  As more members began to feel the pain of tighter trade balances, more support for a supply cut forced the hand of the swing producer, Saudi Arabia. The price control worked until 1986 when prices crashed again.

Normalization Versus Rate Hike Policy

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The steadfast Federal Reserve is at it again. After a meeting on November 2nd, the committee of ten concluded with the federal funds rate and the discount rate held steady at the status quo. In the release, they say that “the case for an increase in the federal funds rate has continued to strengthen,” but of course, confidence wasn’t strong enough for the economy to off of low-interest rate life support. Three hesitant words stuck out to in particular: the labor market is expected to “strengthen somewhat further,” economic activity well grow “at a moderate pace,” and market risks “appear roughly balanced.” To me, these filler words indicate that the Federal Reserve recognizes the signs of a cyclical peak and seeks to diffuse tension in an economy that is moving flatly. The S&P 500, Dow Jones Industrial Average, and Nasdaq indices are trending at all-time highs, valuations continue to rise, and economic numbers paint an ambivalent picture of the economy. It’s not hard to conclude …

Italy Industrial Production and Chaos Theory

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Yes, I'm eating spaghetti today for lunch in honor of Italy's second straight month in a row of beating industrial production expectations. A positive trend in this industry will bode well for President Renzi's hope for the passing of his constitutional referendum to pass next week. In August, output rose 1.7 percent, a positive surprise over the -0.1 percent expected. In July, expectations were also beaten with a 0.7 percent jump. Such meager statistics are not trivial, for those who doubt my need for celebration, as any positive growth trend is critical in a world that has been deemed "low growth." This will be especially true for the ailing Italians who have been in perplexing economic and political positions for some time now. Renzi's cut in corporate taxes will hope to rectify business sentiment that has drifted with low growth. GDP of the ninth largest economy in the world has stagnated over the past four years with growth finally positive midway throug…

Preparing for September

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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?

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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

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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

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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…