Advisor Login Contact Us


Wow!   Depending upon the oil inventory survey, inventories last week declined between14.5 and 12 million barrels versus an expected increase of between 905,000 and 225,000 barrels, respectively.  This was the largest drawdown in either 17 or 30 years respectively and was the greatest “miss” in history.

Is this data wrong?  My immediate thought is that some organization did not report and next week the data will reflect such correction.  However it appears this is not the case.  Some are suggesting the large drawdown was the result of tropical storm activity in the Gulf of Mexico that shuttered some capacity.

I must caution all that weekly inventory surveys are notoriously volatile but as noted the difference between the forecasted increase and the actual data is the greatest on record.

I am certain if next week’s statistics reflect a similar decline, the bearish oil narrative will dramatically change to perhaps one of a possible crude shortage.

In many regards this should not be a surprise given the record amount of western oil infrastructure cuts (amounting to over $350 during the last 20 months) and supply disruptions from Nigeria, Libya and Venezuela.

Moreover, the seven largest oil companies replaced only 67% of oil used in 2015 and 56% of the oil consumed in the first six months of 2016 according to the EIA.   Historically the “oil majors” replace around 110%-115% of oil consumed.  Additionally global demand is a record.

What happens if the oil narrative changes dramatically to one of possible demand pull/cost push inflation?  As noted many times there is over $17 trillion of sovereign debt that has a negative nominal interest rate.  According to the Bank of England the last time negative interest rates were this prevalent was over 5,000 years ago  (Note:  I do not have a clue as to how the BOE evolved at this statement)

Approximately 35% of US Treasury debt is owned by the Federal Reserve, the result of QE.  What happens if yields rise, the result of possible inflationary pressures because of oil?  Will monetary velocity suddenly accelerate stoking yet even more pricing pressures?

Wow!  These comments are about a ludicrous as one’s suggesting Donald Trump would be the Republican nominee in July 2015.

Equites would have been considerably lower if it was not for the advance of oil shares.  Generally speaking, stocks followed bonds after the ECB downplayed the need for more economic stimulus.

Last night the foreign markets were down.  London was down 0.43%, Paris down 0.62% and Frankfurt down 0.47%.  China was down 0.73%.  Japan up 0.04%and Hang Sang up 0.75%.

The Dow should open moderately lower ahead of several speeches given by Federal Reserve officials.  I do not think they will cover anything new given the upcoming Fed meeting and the recently released Beige Book.  The 10-year is off 13/32 to yield 1.65%.

Return To Index Page
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.