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Oil Again Advanced

Oil rose about 2% yesterday following the announcement that Saudi Arabia will extend its unilateral oil production cut by another three months.  Its daily production will hold around 9 million barrels a day, the lowest level in several years.  The move exceeded market expectations. 

How will this impact inflation?  As widely discussed, the Administration changed how the government calculates CPI believing oil would decline in 2023, not rise.  Crude is now at the highest level since November 2022. 

There are few options as to how to lower prices.   Additional releases from the strategic oil reserve are not an option given low inventories, the result of earlier year releases to combat the previous rise in crude.

As noted several times, according to the Treasury Department, approximately $7 trillion in debt needs to be rolled over between now and December 31 and almost one third of the entire national debt needs to be rolled over within the next 12 months. Who is going to buy this debt and at what interest rate.

How will the rise in crude impact interest rates, an environment compounded by the government’s insatiable need for funds. Washington may perhaps acknowledge its spendthrift measures only after a market dislocation. 

Markets were mixed yesterday.  For the exception of oil, equities were generally lower.  Bond yields nominally higher.

Last night the foreign markets were down.  London was down 0.65%, Paris down 0.67% and Frankfurt down 0.35%.  China was up 0.12%, Japan up 0.62% and Hang Seng down 0.04%.

Dow and NASDAQ futures are flat and down 0.30%, respectively. The 10-year is up 5/32 to yield 4.25%.  How will the markets respond to the widely followed, but unofficial estimate of GDP by the Atlanta Fed now has the economy expanding by 5.6% on an annualized basis, the greatest growth since 3Q03 [ex COVID distortions]. 

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Kent 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.