Friday, November 28, 2014

Markets fluctuate as oil sinks to lowest levels in years

Dow rose 47, decliners barely ahead of advancers & NAZ went up 19.  The MLP index PLUNGED 24 to the 489 (its biggest drop in history) while the REIT index rose 3+ to the 327s (a new multi year high).  Junk bond funds fell & Treasuries gained as commodities declined.  Oil dropped like a rock after OPEC triggered the biggest one-day plunge yesterday in 3 years by failing to cut its output in response to a glut.  Gold also saw selling.

AMJ (Alerian MLP Index tracking fund)

CLG15.NYM...Crude Oil Feb 15...69.39 Down ....4.37  (5.9%)

GCF15.CMX...Gold Jan 15......1,181.60 Down ...15.50  (1.3%)

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Photo:    Bloomberg

OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market & the challenge to US shale drillers.  The 12-nation OPEC kept its output target unchanged even after the steepest slump in oil prices since the global recession, prompting speculation it has abandoned its role as a swing producer.  Yesterday’s decision propelled futures to the lowest since 2010, a level that means some shale projects may lose money.  The fracking boom has driven US output to the highest in 3 decades, contributing to a global surplus that Venezuela yesterday estimated at 2M barrels a day, more than the production of 5 OPEC members.  Demand for the group’s crude will fall every year until 2017 as US supply expands, eroding its share of the global market to the lowest in more than a quarter century, according to the group’s own estimates.  “We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves,” OPEC Secretary-General Abdalla El-Badri said.  “We are not sending any signals to anybody, we just try to have a fair price.”  OPEC pumped almost 31M barrels a day in Oct & has exceeded its current output ceiling in all but 4 of the 34 months since it was implemented.  OPEC’s own analysts estimate production was 30.25M last month.  Members will abide by the 30M barrel-a-day target, El-Badri said yesterday.

Oil Enters New Era as OPEC Faces Off Against Shale; Who Blinks as Price Slides Toward $70?

China has about the same number of licensed drivers as there are people in the US, even though 2 out of 3 adults aren’t qualified to operate a motor vehicle.  There are now more than 300M motorists in China, compared with the US population of 319M, according to Chinese public security ministry & US census data.  It took just 4 years to add 100M new drivers in China, & 35 of its cities now have more than 1M vehicles, with major urban centers like Beijing & Shenzhen having twice that number.  The rising number of motorists will boost vehicle demand while increasing the burden on cities already struggling to cope with pollution & congestion.  The public security ministry said separately this week that it is looking at making it easier to get a license by removing the need for mandatory driver’s education classes.  Automakers are expected to sell about 23M new vehicles this year, according to a forecast by the state-backed China Association of Automobile Manufacturers.  Cities including Beijing, Shanghai & Hangzhou have implemented caps on the number of new autos as part of measures to control tailpipe emissions.  Even as the number of drivers has risen, cases of major traffic accidents have fallen, the ministry said.  Deaths caused by speeding accidents dropped 36% in the past 2 years, while those due to drunk driving decreased 39%.

China Motorists Exceed 300 Million as Cities Struggle to Cope

This is a quiet day for the market except for oil related issues.  MLPs are taking the drop in oil prices hard & this may be just the beginning of selling.  Fracking  is important for getting marginal petroleum from the ground & this is a high cost business.  Low oil prices will impact most MLPs.  Of course, US crude production is still expected to rise next year.  But this is new territory & nobody how it will play out for MLPs.

Dow Jones Industrials

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