Never before in the history of writing my weekly commentary have I referenced that the Energy Information Agency Petroleum Status Report. I guess there is a first time for everything. Every week this report provides the status of petroleum reserves in the United States. We never pay much attention to it. However, the last three weeks it has been a different story.
If you own a car, you know that gas prices at the pump have been plummeting and are now at the lowest point in 16 years.
- This is due to the worldwide glut of oil and the fact that the U.S. petroleum reserves are virtually full.
- Despite this, oil continues to be pulled out of the ground faster than the world is using it, and there is now a problem in the U.S. as to where to store it.
The economic slowdown in China, and now additional counties in Asia and Europe, has the worldwide consumption of oil declining even further.
- This is creating even more of a storage and oversupply problem.
- Prices continue to fall and this is killing corporate profits for major oil companies around the world.
- This is leading to many energy companies to file bankruptcy.
As consumers, we may say we do not care about the oil companies because we remember what it was like when oil was over $100 a barrel and a gallon of gas was more than $4.00. It did not seem like the energy companies cared about us.
The issue at hand is that the energy sector is a major component of stock markets in the U.S. and around the world.
- If the energy companies struggle, or even go bankrupt, as so many already have, this has a direct impact on stock markets.
- This is what has been happening.
There is a positive side to what has been happening.
- Mortgage rates are dropping like a rock.
- Rates have declined over 0.5% since the beginning of the year.
- Although this has not yet translated into a significant jump in home purchases, existing homeowners are flocking to mortgage companies to once again refinance.
- It should be just a matter of time before the purchase market jumps.
First time jobless claims, in which there were concerns that they may be trending upward, have shown that they continue to remain at a healthy level below 300,000.
- Even last week’s national employment report showed that the underlying fundamentals of the labor market are strong.
- Investors now do not seem to care as they continue to remain fixated on the oil markets right now.
It is likely that the next week will be another rollercoaster ride in the markets, but hang in there.
The major potential market moving reports are:
- Monday February 15th – Presidents Day, Markets Closed
- Tuesday February 16th – Housing Market Index
- Wednesday February 17th – MBA Applications, Housing Starts, FOMC Minutes
- Thursday February 18th – First Time Jobless Claims & EIA Petroleum Status Report
- Friday February 19th – Consumer Price Index