How Far Into The New Year Will Crude Rock The Cradle

In a not-wholly-unexpected development, Brent North Sea crude and West Texas Intermediate reached effective parity on world markets today.

Nevertheless it comes as a bit of a bucket of cold water in the face. It is one of those moves you can’t quite be psychologically prepared for regardless of your experience level.

Once again, the three-headed dog of oversupply, ample storage and low consumption snarled and snapped at the crude oil scene. Let’s focus on consumption.

BNP Paribas said the number of U.S. and European heating days had been 30% and 39% below the 10-year average since December 7, 2015, respectively, and that the number of days on which heating is expected to be required was going to be 23-24% lower than normal until early January.

The use of oil as a fuel to generate electricity is also on the wane. However, the number of hours driven is rising the world over and especially in the United State, although the country of the car is still struggling to get back to 2009 levels. The average price of gasoline is now just below $2.00 nationwide.

We are calling for higher oil prices by Q3 of 2016, and certainly by early ’17. But, we are still certain that for the rest of the economy stable prices are more important than a particular price point.

In spite of the Brent crude parity issue, U.S. equities stabilized then strengthened. The Dow Jones industrials added more than 175 points in afternoon trade. Caterpillar rose more than 5% to contribute much of the gain.

Europe was mixed, with Germany higher and France and Great Britain marginally lower. In Asia, China stocks neared a one-month high.

Gold failed to sustain its two-day rally, dropping over $5.00 at 3:30 in New York. The rest of the precious metals complex was mixed with silver and palladium up and platinum down.

Less-than-stellar economic data pushed the greenback down against the standard basket of currencies.

One private report said that existing home sales plunged 10.5% in November, their steepest drop since July 2010.

Additionally, an already anemic prediction of 2.1% GDP growth in the U.S. was not met. GDP in Q3 hit only 2.0%. Not much of a miss, but a miss nonetheless.

However, before we read too much into any current equities movements – or any market for that matter – let’s keep in mind that the end of year is the time for a) position squaring, b) dumping losses for tax purposes, and 3) selling stock to pay for holiday expenses.

As we say ad infinitum, it is also a time of year when lower trading volumes and junior players are pushing markets around, often without meaning to.

Wishing you as always, good trading,