From Stockhouse
The Energy Report for Tuesday, November 7, 2006
It's Election Day! And for election day the Energy Report is all geared up for a good old fashion red, white and blue spectacular! What better way to head into an election then with a triple digit run-up in the Dow and oil prices soaring back above $60.00 a barrel?!
After a spectacular day like the one yesterday, it might make those of us that like to live in the grassy knoll or other conspiracy theorists to think that the big run-up in the Dow and oil might have something to do with the election. Oh sure the conspiracy guys have been telling me for weeks that the Republicans have been scheming and keeping energy prices low until the election is over. When all the votes are finally counted it'll be off to the races once again for energy. And as for the stock market, many are saying the timing of the spectacular run-up along with the big jump employment numbers is just a little bit too convenient. True or not, if enough people believe it, it may become a self fulfilling prophecy. There has been a lot of money on the sideline in oil and I spoke to many people who say that oil would bottom right after the election. And of course it sure doesn't hurt that the election is in early November when oil seasonally has a tendency to bottom any way.
Crude oil closed above $60.00 a barrel yesterday in a big rebound after trading lower and weaker overnight. The rebound started on news out of Nigeria. As I stated early yesterday, the market was lower as it appeared the threats made by Nigerian rebels were not acted on. But I spoke too soon and traders sold too soon when in early trading it was reported that armed protesters invaded an oil facility in Nigeria operated by a subsidiary of ENI SPA. The company soon suspended production at the facility. The attack wasn't quite as spectacular as the that was made last week when the US Embassy warned that militants were planning a huge attack against oil facilities in Nigeria over the weekend. The attack raised concerns that another attack might be possible.
What may also be possible is another production cut from OPEC. Whether you believe OPEC or not when it comes to talking about production cuts, when Ali Naimi of Saudi Arabia speaks the market pays attention. Leave it to Mr. Naimi to give a shot to the market by saying that if they have to cut production at the December meeting to keep the market in equilibrium they will. OPEC's President also said that oil production would have to be cut and a further mopping up of supply was necessary because the the market is clearly oversupplied. Key to the issue is whether OPEC will fall into compliance or not. According to Bloomberg News OPEC crude production from the 11 members of the OPEC cartel declined by 225,000 barrels a day which is a sign that we should see more of a drop in production in November.
Mr. Naimi also said that low oil prices were unsustainable and that the world economies have proven that they can afford higher prices. He said the main reasons prices were high was the result of underinvestment in the industry over the past two decades.
As for the stock market, was it perfect timing for the election or acquisition mania (as in the Four Seasons deal and the Abbot Labs/ Kos Pharmacy deal, Verizon/You Tube talks etc). Or was it upbeat comments from the President of the Chicago Federal Reserve Bank Michael Moscow. Yesterday I was honored to speak on the same panel as Mr. Moscow at the Chicagoland Chamber of Commerce/WBBM Newsradio 780 annual economic forecast. Mr. Moscow was very upbeat on the economy. He said that the US economy should bounce back from a weak third quarter and average a real GDP somewhat below 3.0%. He said that the numbers should be a bit volatile but the average growth should be solid. The bulk of the slowdown was due in part to the weak housing market but reminded the audience that only accounts for 5.0% of the GDP. Mr. Moscow said that he does not see the housing slowdown spilling over into a prolonged period of weakness in the economy and that on balance 95% of the economy outside of housing remains on good footing.
I generally agreed with Mr. Moscow and pointed out that despite weaker than expected readings on GDP, manufacturing and construction that I also saw the economy rebounding. I pointed to energy demand that is too often overlooked as an economic indicator and pointed out that demand was near record highs. For this year with those numbers, it would suggest that indeed we will see a rebound, if not upward revisions, in all the aforementioned numbers. If you would like to here it you can download the pod cast at the WBBM radio website.
For oil traders it will be the weekly supply reports from the Department of Energy that will drive us tomorrow. Look for crude to be down 1.0 million barrels, gasoline up 1.0 million barrels and distillates up 1.0 million barrels.
Natural gas was down on a temperature warm-up. The natural gas chart is up and down with the thermometer.
The New York Times reports that China will pass the US in emissions in 2009. According to the Times they are nearly a decade ahead of previous predictions! Of course China is exempt from the Kyoto Protocol mainly because they are not the US. Which makes one wonder if you are fearful of global warming dose it matter if the emissions are from China or the US?
The Houston shipping channel was shut for a bit due to fog |
