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Is It a Function of AAA to Expect a Record Number of Miles to be Driven this Memorial Day Weekend?

Oil rose over 3.0% yesterday as the markets digested the news of a larger than expected oil inventory draw down and stronger than expected Chinese growth.

Commenting on the former, inventories typically peak around the end of winter and summer as refineries change over to and from environmentally mandated gas formulas in the large urban markets. As noted, such drawdowns are seasonal however the current reduction surprised even the most bullish analyst. Is it a function of AAA is expecting a record number of miles to be driven this Memorial Day weekend?

Speaking of which, excess capacity is not as great as some pundits have suggested.  Several influential oil think tanks have commented that if economic growth remains constant and if the US drives as many miles this summer as last, excess daily capacity is around 250,000 barrels versus 1.4 million.  This estimate is based upon the reduction of output in the US, Norway and England.

I ask what happens to crude if demand is greater because of stronger growth or ifAmericans have greater travel plans than forecasted?  What happens if there is a supply disruption?

Returning to the here and now, yesterday the equity markets were relatively quiet for the fifth consecutive day.  Is this a bullish or bearish indicator?  It depends upon one’s preconceived bias and outlook.  Today is also expected to be quiet going into the Memorial Day Holiday, the unofficial start of summer unless there is some unexpected comments made today by FRB Chair Yellen.

Speaking of which please remember all who gave the “ultimate sacrifice” in your thoughts and prayers.   To paraphrase Winston Churchill, we owe so much to so few, the few that have permitted all to live the lifestyle that we have grown accustomed.

Thank you to all who have worn the uniform!!

Last night the foreign markets were mixed.  London was up 0.50%, Paris down 0.23% and Frankfurt down 0.40%.  Japan was up 0.30%and Hang Sang up 1.70%.

The Dow should open flat ahead of Yellen’s speech and the CPI data.  The 10 year is up 6/32 to yield 2.17%.

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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.