Dow dropped 125. decliners over advancers about 2-1 & NAZ fell 19. The MLP index sank 6+ to the 284s & the REIT index was off 3+ to the 353s. Junk bond funds were little changed & Treasuries eased back, bringing higher yields. Oil remained lower in the 67s & gold tumbled 17 to 1201 (briefly below 1200).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
OPEC forecast lower demand for its crude next year as rivals pump more & said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production. In a monthly report, OPEC said the world will need 32.05M barrels per day (bpd) of crude from its 15 members in 2019, down 130K bpd from last month's forecast. OPEC said its oil output in Jul rose to 32.32M bpd, above the demand forecast, despite a surprise cut in output by Saudi Arabia just weeks after OPEC & its allies had agreed to boost supplies.
OPEC's oil production ticked higher in Jul, but cuts by top exporter Saudi Arabia weighed on the 15-member group's output just one month after it agreed to start pumping more crude. The Saudis throttled back drilling last month after agreeing with OPEC, Russia & several other producers to put more barrels on the market in Jun. The kingdom is facing pressure from big oil consuming nations like China & India, as well as the Trump administration, to tamp down fuel costs ahead of the renewal of US sanctions on Iran, OPEC's 3rd biggest producer. Pres Trump is aiming to cut Iran's oil exports to zero by Nov, a policy that threatens to leave the world short of oil & boost prices at the pump if OPEC & Russia cannot fill the gap. A group of 2 dozen oil-producing nations has been limiting its production since Jan 2017 in order to drain oversupply, but has scaled back that policy in light of the Iranian sanctions & output declines in places like Venezuela & Angola." Compared to a year earlier, there has been an overall improvement in crude oil prices in 2018," OPEC said in its monthly report. At the same time, product prices have generally followed the upward trajectory of crude oil prices. In another twist for the market, OPEC's latest report shows a significant discrepancy between Jul production figures provided by Saudi Arabia & data compiled by independent sources. While the kingdom says it cut output by about 200K barrels per day, an average of estimates from several outside sources puts the drop at nearly 53K bpd.Saudi Arabia had telegraphed the drop prior to the release of the report. However, others estimated the Saudis actually hiked output to 10.6M bpd in Jul. The Saudis face the challenge of managing the oil market so that prices do not rise high enough to hurt demand or upset allies like Trump, but do not fall so low that they put stress on the kingdom's finances. Saudi Arabia is trying to keep oil prices around $80 a barrel & a drop in Saudi production tends to boost prices. US crude ended last week below $68, while intl benchmark Brent crude settled under $73. The drop in production from Saudi Arabia comes after the kingdom hiked output by more than 400K bpd in Jun. The entire OPEC group saw its output jump by nearly 41K bpd in Jul to 32.3M bpd, according to independent figures cited by the group in its monthly report. Kuwait & the UAE, 2 of the only OPEC nations with spare capacity, contributed the biggest & 3rd-largest increases, respectively. Africa's top producer, Nigeria, rounded out the top 3 largest increases for the month, while Iraq also pumped more. In addition to Saudi Arabia, independent sources also reported declines of about 50K bpd from Iran, Libya & Venezuela. Looking forward, OPEC increased its forecast for oil production from countries outside the group for this year & next. It now expects those countries to pump 59.6M bpd in 2018, up 73K bpd from its last estimate. In 2019, it sees non-OPEC producers pumping nearly 61.8M bpd, 106K bpd more than previously expected. Both adjustments were due to OPEC's view that China will pump more than previously anticipated in both years. Meanwhile, the cartel knocked down its outlook for growth in global oil demand by a moderate 20K bpd for both 2018 & 2019. However, the world is still expected to consume a record 98.8M bpd this year, while demand is projected to top 100M bpd for the first time next year. That will leave the world with less demand for OPEC's oil. This year, oil buyers will need about 600K fewer bpd from OPEC than it consumed in 2017. Demand for OPEC's oil is set to drop by another 800K bpd in 2019, according to the group.
Saudi Arabia cuts oil production in July despite agreement to hike output
While there is a lot going on in the oil market, Turkey's problems are center stage. Central Banks are supposed to help each other out in times of stress (like now). But they're having problems with Turkey because it doesn't want to increase interest rates, a classic solution for troubled countries. After the Dow began the day higher, there was substantial selling for much of the day. The Dow finished near its lows, suggesting a gloomy start tomorrow.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Turkey's central bank took action to free
up cash for banks as the country grapples with a currency crisis sparked
by concerns over Pres Erdogan's economic policies &
a trade & diplomatic dispute with the US. The
Turkish lira has nosedived over the past week, accelerating a
months-long decline, & tumbled another 7% today as the
central bank's measures failed to restore market confidence. Investors
are worried about a confluence of factors: the country's reliance on
foreign loans that may stop flowing in as interest rates rise in other
economies, like the US; Erdogan's insistence that the central bank not
raise interest rates, as most independent analysts say it should; & a
spat with the US that has led to sanctions & the fear of greater
isolation from longtime allies in the West. The
uncertainty pushed down world stock markets & briefly caused a sharp
drop in the currencies of other emerging countries, like South Africa & India, amid concerns that investors might see similar problems in
their economies. The
lira hit a record low of 7.23 per $ late yesterday after Erdogan
remained defiant in his economic policies & the standoff against the
US, a NATO ally. "Turkey is faced
with an economic siege," Erdogan said today, in the latest of a series
of speeches. "We are taking the necessary steps against these attacks
and will continue to do so." He has threatened
to seek new alliances, a veiled hint at closer ties with Russia, &
warned of drastic measures if businesses withdraw foreign currency from
banks. Erdogan also ruled out the possibility
of higher interest rates, as they can slow economic growth. But
independent analysts say higher rates are needed urgently to stabilize
the currency & Erdogan's hard line is one of the reasons investors are
worrying. Erdogan won a 2nd term in office
in Jun under a new system of gov that gives him sweeping powers.
He has used his new power to put pressure on the central bank to not
raise rates. Today, the central bank
announced a series of measures to "provide all the liquidity the banks
need" — but offered no hint of a rate increase. The
moves are meant to grease the financial system, ease worries about
trouble at banks & keep them providing loans to people & businesses. In
times of high uncertainty, banks tend to shy away from lending to each
other. A credit crunch, a lack of daily liquidity, can cause a
bank to collapse. The lira has now dropped some 45% this year. Part
of the concerns about Turkey are the same as other emerging markets. As
interest rates rise in the US, investors pull their money out of
countries that had enjoyed strong economic growth but are perceived as
somewhat riskier. Turkey's situation is among
the most precarious among emerging markets because so much of its growth
was fueled with debt in foreign currencies. That makes the currency
drop so much more painful as it will increase the cost of servicing debt
for Turkish companies & banks & could lead to bankruptcies.
Turkey tries to contain crisis but currency keeps falling
OPEC forecast lower demand for its crude next year as rivals pump more & said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production. In a monthly report, OPEC said the world will need 32.05M barrels per day (bpd) of crude from its 15 members in 2019, down 130K bpd from last month's forecast. OPEC said its oil output in Jul rose to 32.32M bpd, above the demand forecast, despite a surprise cut in output by Saudi Arabia just weeks after OPEC & its allies had agreed to boost supplies.
OPEC trims 2019 demand for its oil, says Saudi cuts output
OPEC's oil production ticked higher in Jul, but cuts by top exporter Saudi Arabia weighed on the 15-member group's output just one month after it agreed to start pumping more crude. The Saudis throttled back drilling last month after agreeing with OPEC, Russia & several other producers to put more barrels on the market in Jun. The kingdom is facing pressure from big oil consuming nations like China & India, as well as the Trump administration, to tamp down fuel costs ahead of the renewal of US sanctions on Iran, OPEC's 3rd biggest producer. Pres Trump is aiming to cut Iran's oil exports to zero by Nov, a policy that threatens to leave the world short of oil & boost prices at the pump if OPEC & Russia cannot fill the gap. A group of 2 dozen oil-producing nations has been limiting its production since Jan 2017 in order to drain oversupply, but has scaled back that policy in light of the Iranian sanctions & output declines in places like Venezuela & Angola." Compared to a year earlier, there has been an overall improvement in crude oil prices in 2018," OPEC said in its monthly report. At the same time, product prices have generally followed the upward trajectory of crude oil prices. In another twist for the market, OPEC's latest report shows a significant discrepancy between Jul production figures provided by Saudi Arabia & data compiled by independent sources. While the kingdom says it cut output by about 200K barrels per day, an average of estimates from several outside sources puts the drop at nearly 53K bpd.Saudi Arabia had telegraphed the drop prior to the release of the report. However, others estimated the Saudis actually hiked output to 10.6M bpd in Jul. The Saudis face the challenge of managing the oil market so that prices do not rise high enough to hurt demand or upset allies like Trump, but do not fall so low that they put stress on the kingdom's finances. Saudi Arabia is trying to keep oil prices around $80 a barrel & a drop in Saudi production tends to boost prices. US crude ended last week below $68, while intl benchmark Brent crude settled under $73. The drop in production from Saudi Arabia comes after the kingdom hiked output by more than 400K bpd in Jun. The entire OPEC group saw its output jump by nearly 41K bpd in Jul to 32.3M bpd, according to independent figures cited by the group in its monthly report. Kuwait & the UAE, 2 of the only OPEC nations with spare capacity, contributed the biggest & 3rd-largest increases, respectively. Africa's top producer, Nigeria, rounded out the top 3 largest increases for the month, while Iraq also pumped more. In addition to Saudi Arabia, independent sources also reported declines of about 50K bpd from Iran, Libya & Venezuela. Looking forward, OPEC increased its forecast for oil production from countries outside the group for this year & next. It now expects those countries to pump 59.6M bpd in 2018, up 73K bpd from its last estimate. In 2019, it sees non-OPEC producers pumping nearly 61.8M bpd, 106K bpd more than previously expected. Both adjustments were due to OPEC's view that China will pump more than previously anticipated in both years. Meanwhile, the cartel knocked down its outlook for growth in global oil demand by a moderate 20K bpd for both 2018 & 2019. However, the world is still expected to consume a record 98.8M bpd this year, while demand is projected to top 100M bpd for the first time next year. That will leave the world with less demand for OPEC's oil. This year, oil buyers will need about 600K fewer bpd from OPEC than it consumed in 2017. Demand for OPEC's oil is set to drop by another 800K bpd in 2019, according to the group.
Saudi Arabia cuts oil production in July despite agreement to hike output
While there is a lot going on in the oil market, Turkey's problems are center stage. Central Banks are supposed to help each other out in times of stress (like now). But they're having problems with Turkey because it doesn't want to increase interest rates, a classic solution for troubled countries. After the Dow began the day higher, there was substantial selling for much of the day. The Dow finished near its lows, suggesting a gloomy start tomorrow.
Dow Jones Industrials
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