It’s not surprising that stocks fell Monday, October 7. But it is surprising that they fell so little. The Standard & Poor’s 500 was off 0.96% on the day. The NASDAQ Composite dropped 1.18%. Wall Street’s favorite volatility gauge–the VIX–jumped to “just” a two-month high. Look at the negatives arrayed against stocks
What’s amazing to me right now is how complacent Wall Street is about the prospects for a wider regional war in the Middle East. Which could include an attack by Israel on Iran’s nuclear facilities.On a day when Israel vowed to retaliate against a barrage from Iran that rained down missiles on Israel’s Iron Dome defense, West Texas Intermediate oil rose by just 0.39% to $70.10 a barrel. International benchmark Brent crude was ahead just 1.43% to 74.61.
West Texas Intermediate rose to its October 2023 highs, before pulling back, on fears that an Iranian retaliation for an Israeli attack on an Iranian consulate would lead to a wider war in the Middle East. International benchmark Brent crude surged as much as 2.7% to top $92 a barrel before retreating to close at $90.26 a barrel, up 0.58% on the day. West Texas Intermediate, the U.S. benchmark, is now up 19% in 2024. Bloomberg reports that Western intelligence assessments are looking for an Iranian attack in the next 48 hours. No one wanted to hold U.S. equities ahead of the weekend.
The world’s No. 2 oil producer, Saudi Arabia, wants to cut oil production to raise oil prices. And has even actually curtailed production to meet that goal. The world’s No 3 oil producer, Russia, wants (others mostly) to cut oil production to raise prices. And has even promised to cut its own production. (We’ll believe that when we see it.) But none of that matters because the world’s No. 1 oil producer, the United States, has put its foot to the accelerator and is producing at record volumes.
OPEC+ agreed to a surprise new oil supply cut of about 900,000 barrels a day at today’s meeting. But oil prices fell anyway. Turns out that nobody believes that the organization will deliver on its promises. Members including Russia, the United Arab Emirates, Kuwait and Iraq pledged the extra reductions after an online meeting, OPEC said. And Saudi Arabia promised to continue its unilateral 1 million barrel-a-day cut through the first quarter. But, critically, the cuts are voluntary.
I’m hoping for some clarity this week on the market trend after Friday’s wild day. Friday’s intraday moves summed up the uncertainty about the direction of this market.
Today’s Trend of the Week is Which is it? OK Growth in the U.S. or Not Great Growth Globally? The U.S. market is rallying and the rally even expand from the narrow nine stocks that have been driving up the indexes. The consensus is the U.S. economy will avoid a recession, the Fed will continue to pause rate hikes, and the U.S. economy as a whole is in decent shape. The problem is that the global economy presents a completely different story with asset values pricing in slowing growth. This shows up most clearly in oil prices, which have been in a downward trend. On June 13, West Texas Intermediate was selling below $70 a barrel, and Brent was down to 74.57. Goldman Sachs has cut its end-of-the-year oil price forecast by about 10%. This cut assumes continued lower demand from China and a supply glut, especially from Russia, as that country produces above agreed-upon caps in an effort to fund its war in Ukraine. If you own oil stocks right now, confirm that the ones in your portfolio can continue to make money at $70 a barrel (at least enough to cover dividends). I’d note the lowest cost source in the United States is in the Permian Basin. Companies like Pioneer National Resources and Devon Energy are focused on production from that region.
The Russian government insists that the country has cut oil output as promised. But all the available numbers day that Russian crude oil is flowing at above levels agreed with OPEC. Of course, it’s hard to tell because Russia has stopped reporting key export figures. Russia restricted oil-output data last year due to its “sensitive” nature. And Russia’s Federal Statistics Service stopped publication of crude and condensate output earlier this year until April 2024, following a government decree. That has left oil industry analysts seeking to extrapolate Russia’s crude exports from data such as seaborne shipments. From that indicator it looks like Russian crude flows to international markets are more than 1.4 million barrels a day higher than they were at the end of last year.
U.S. oil benchmark West Texas Intermediate fell 0.57% today to $71.74 a barrel and international benchmark Brent crude lost 0.46% to $76.31 a barrel. In spite of a big cut in production announced this weekend by Saud Arabia. The voluntary cut of an extra 1 million barrels a day in July will take Saudi production to its lowest level in years.
Just in case there are readers who don’t watch my videos, but do follow my picks. Today, April 5, I added Devon Energy (DVN) to my Jubak Picks, Dividend, and Volatility Portfolios.
Today oil prices and oil stocks are soaring on the bullish case that the surprise OPEC+ production cut will push gasoline to $4 a gallon and oil to $100 a barrel. Not everyone buys the bullish case–at least not after a few days of what these analysts call a knee-jerk reaction. And they’ve got a point
