Morning Minutes 09/24/2018

Morning Minutes

Big Breakout for Brent Crude Oil; Big Buy for Barrick

September 24, 2018
10:00 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

The beginning of the last trading week for the month and quarter finds energy prices soaring. Both WTI and Brent Crude are up over 2.0% today. Meanwhile, gasoline has regained $2.00 per gallon and is up 1.7%.

Brent Crude has regained $80.00/bbl for the first time since November of 2014. Oil markets have attracted renewed interest on a growing recognition that supply is becoming constrained in a time of strong demand. Over the weekend, OPEC and Russia indicated that despite calls from President Trump to boost production they have no plans to do so. Meanwhile, Iran has been taken out of the export market by the President’s sanctions, US production growth is slowing and Canada’s export capacity has been restricted
by a lack of new pipelines.

The potential for a return to $100/bbl oil has been getting mentioned a lot in the media today. Regardless of whether or when that happens, the growing prospect of higher energy prices and a higher floor coming in underneath (currently about $65.00/bbl for WTI) has attracted renewed interest to energy stocks.

The mining sector may also attract attention today. Canada’s Barrick Gold has agreed to purchase UK-listed Randgold Resources to create a new gold mining giant with annual revenues of US$9.7B and a combined market cap of $18.3B including ownership of 5 of the world’s top 10 gold mines. Barrick also announced a cross-ownership arrangement with China’s Shandong Gold where each will purchase $300 million of the other’s shares.

The gold price is up 0.4% this morning and has regained $1,200/oz. For Barrick to strike now on two deals, one has to think that management may be seeing value out there, a potentially positive sign. This also could be the start of a new round of consolidation among senior gold producers which could return speculative interest to the sector.

US indexes are trading lower off the open with the Dow and S&P down 0.3%. The Hang Seng fell 1.6% overnight as the latest round of US tariffs against China kicked in. The S&P/TSX, on the other hand, is up 0.25% boosted by a 2.2% gain in the Energy sector and a moderate gain for miners. In the US, following the big sector realignment over the weekend, Communications and Technology are both down 0.4% while Consumer Discretionary is down 0.7%. Energy is the strongest US sector today up 1.7%.

SIA Wealth in the Media:
Colin Cieszynski is scheduled to appear on BNN Bloomberg about 3:10 pm EDT this afternoon (Monday) to talk about the markets.

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