Wednesday, April 20, 2016

Higher markets as oil vaults to $43

Dow jumped up 42, advancers over decliners a mere 4-3 & NAZ gained 7.  The MLP index shot up another 5+ to the 295s (a new high for 2016) & the REIT index lost 5+ to the 336s.  Junk bond funds were higher along with stocks & Treasuries retreated.  Oil surged to the high 43s (see below) & gold slid back, taking it below 1250.

AMJ (Alerian MLP Index tracking fund)

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CL.NYM....Light Sweet Crude Oil Futures,M....42.74 Up ...1.66 (4.0%)

Live 24 hours gold chart [Kitco Inc.]

Oil climbed to the highest level in more than 4 months after a gov report showed US crude production dropped & futures rose.  Crude output fell to 8.95M barrels a day, the lowest since Oct 2014, Energy Information Administration data show.  Rigs targeting oil in the US slipped to the least since Nov 2009.  OPEC members & other producers plan to meet in Russia, possibly in May, in a push to freeze output & support oil prices, Iraq’s Deputy Oil Minister Fayyad Al-Nima said.

Russia doubts that there will be a freeze deal in the foreseeable future. After the discussions in Doha, the chances for a agreement are "relatively low," the Russian minister said.  Crude inventories climbed 2.08M barrels to 538M barrels last week, the highest level since 1930.  A 3M barrel gain was projected before the report.  Supplies at Cushing, Oklahoma, the delivery point for WTI & the nation's biggest oil-storage hub, dropped by 248K barrels.  Refineries bolstered operating rates by 0.2 percentage point to 89.4% of capacity.  US refiners typically increase utilization in Apr as they finish maintenance before the summer peak driving season.

This rally smells.  Something is not right.  Oil production just below 9M barrels is about 5% below the record levels set a few months ago.  That is not a big deal!  Meanwhile, high inventories are not going away anytime soon.  The rally in stocks was modest, although the market is vastly overbought, & breadth was limited.  Today's oil rally is difficult to understand or believe.  Dow is within 200 of setting a new record, but this is a very tired market with low expectations as earnings season begins.

Dow Jones Industrials


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