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Equites advanced yesterday as the dollar fell and oil advanced.  Thirty days ago most believed such a scenario could not develop.  Commenting about the dollar, the dollar declined as the Fed indicated only two possible rate hikes versus four.  However I cynically ask did consensus think the Fed will not act all in 2016?

Regarding oil, crude is now over $40 barrel, up about 50% from its lows also reached about 30 days ago.  The reasons for the advance, stronger demand and lower supplies, the result of infrastructure cuts and supply disruptions.

It was reported yesterday US production is now lower than when OPEC launched its current policy in November 2014.  Nigeria’s production is down approximately 20% since year end because of political unrest.  Iraqi production is down about 15% because pipeline disruptions through Kurdish/Turkish held territory and an unexpected 48% decline in reserves in a major oil field, perhaps the result of the lack of infrastructure spending.

Venezuela’s production is down about 8% since November 2014, the result of extreme financial distress where the government announced the country will essentially close for seven days to cope with its electricity crisis.

Libya is a failed nation state that was producing about 2 million barrels day in 2011 to approximately 100,000 barrels today.

Will 1999 repeat itself?  As noted many times oil fell about 50% in a year than rallied 50% in about 20 days on stronger demand and lower supplies, doubled by year end from its lows [10 months] and then doubled again in the next 12 months.

Today oil is up about 50% in about 20 trading days.  If oil were to double by year end, crude would be around $54/barrel or about $14 higher than today. If it doubled in 2017, crude would be around $108 or where it stood in July 2014.

I am not suggesting crude will be at $108 in 20 months but I do think oil will be around $50 by the beginning of the third quarter for reasons articulated many times.

What will happen today?

Last night the foreign markets were up.  London was up 0.37%, Paris up 0.30% and Frankfurt up 0.23%.  China was up 3.65%,  Japan down 1.25%and Hang Sang up 0.82%.

The Dow should open nominally higher as oil is up again The 10-year is

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.