Tuesday, January 13, 2015

Early rally erased as oil falls to $45

Dow began the day with a strong gain but selling brought it down to a loss of 27 (closing near the lows), decliners ahead of advancers 5-4 & NAZ fell 3.  The MLP index sank another 9+ to the 418s while the REIT index lost 1 to the 343s.  Junk bond funds were lower & Treasuries gained again, bringing the yield on the 10 year Treasury below 1.9%.  Oil is sloshing around in the 45s (versus 107 last Jun) & gold slid lower.

Dow Jones Industrials

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CLK15.NYM....Crude Oil May 15....48.07 Down ...0.29  (0.6%)

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The Energy Information Administration (EIA) raised its foecast for gasoline demand to the highest since 2009 as a drop in pump prices boosts driving & is expected to save the average household $750 this year.  Gasoline comsumption will increase 60K barrels a day in 2015 to 9M, the EIA said in its Short-Term Energy Outlooks.  The agency had projected last month that demand would fall to 8.86M.  The 43% plunge in retail prices since Apr has increased travel & consumer spending.  The nation’s refineries are running at the highest seasonal rates in 10 years to take advantage of plummeting oil prices, expanding gasoline stockpiles to the most since 2011.  “Decreased crude oil prices will keep gasoline prices low in 2015 and save the average U.S. household about $750,” the EIA said.  “Gasoline prices have already fallen for 15 weeks in a row, which matches the record streak of price declines set at the end of 2008.”  Demand in the 4 weeks ended Jan 2 increased 0.7% to 9.33M barrels a day, the highest since Sep 2010, EIA data show.  US refineries operated at 93.9% of capacity in the week ended Jan 2, the highest rate for this time of year since 2005.  Gasoline supplies jumped 3.5% in the same period to 237M barrels, the most in 4 years.

Gasoline Demand Rising as U.S. Drivers to Save $750

KB Home fell the most in almost 3 years after saying its fiscal Q1 gross margin will narrow significantly & that it’s unlikely to meet its goal of a 20% margin for 2015.  “We generated a disappointing fourth-quarter adjusted housing gross margin,” CEO Jeffrey Mezger said.  “We know that our gross margin will continue to lag the prior-year comp for some time.”  KBH margins will narrow from a year earlier as the company boosts incentives & reduces prices to spur sales, Mezger said.  US builders have struggled to sell new homes amid tight lending standards & low buyer demand in markets such as inland California, Mezger said.  Margins also have been squeezed by rising construction & material costs, he added.  The housing market remains shaky.  The stock sank 2.68 (17%).  If you would like to learn more about KBH, click on this link:

KB Home Falls Most in Almost 3 Years as Margin Narrows

KB Home (KBH)

OPEC nations can withstand a drop in crude prices to the lowest in more than 5 years, while shale drillers will probably be the first to curb production amid the collapse, the United Arab Emirates’ energy minister said.  Oil slumped almost 50% last year, the most since the 2008 financial crisis, amid a supply surplus that the UAE & Qatar estimate at 2M barrels a day.  Opec is battling a US shale boom by resisting production cuts & signaling its readiness to let prices fall to a level that slows American output, which has surged to a 3-decade high.  “Everyone needs to take measures, but those who are producing the most expensive oil -- the rationale and the rules of the market say that they should be the first to pull or reduce their production,” Suhail Al Mazrouei, the UAE minister, said.  “If the price is right for them to produce, then fine, let them produce. If the price is not right, then they will reduce.”  US crude slid below $45 a barrel today, falling to the lowest level since Mar 2009.  Brent crude fell to $45.88 in Europe & West Texas Intermediate decreased $1.28 to $44.79 earlier today.  “It’s unlikely we will see a sudden rise” in prices, given excess global supply, Mazrouei said.  “We have seen the oversupply coming primarily from shale oil, and that needed to be corrected.”  Crude prices will be dictated by the highest-cost producer, and shale wells will switch on & off according to price, he said.  He expressed concerned that the price slump would deter the investment needed worldwide to ensure adequate oil output to meet future demand.  “The current prices are not sustainable,” he said.  “Not for us but for the others.”  The UAE, OPEC’s 5th-largest member, pumped 2.7M barrels a day last month & has a capacity of 3M.  The Persian Gulf nation will stick with its plan to boost capacity to 3.5M barrels a day in 2017, in spite of the global glut, Mazrouei said.  “In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals,” he added yesterday.  “Our investments remain there.”

Oil Recovery Seen by Kuwait to U.A.E. After Glut Sends Prices Tumbling

Dow finished down more than 300 from its highs in the first hour.  The oil bust is too gloomy to comprehend.  Even the idea that lower gas prices will be good for retailers is fuzzy.  Solid earnigs reports will be needed to bring buyers back into the stock market.  Dow is down 200+ in Jan as earnings season has begun.

Dow Jones Industrials

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