Morning Minutes 9/16/2019

Morning Minutes

Oil Spikes Upward, Stocks Slide After Attacks On Saudi Production Facilities

September 16, 2019
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Oil prices have soared overnight and into this morning after Houthi rebels from Yemen claimed responsibility for attacks on Saudi Arabia’s Abuqaiq oil processing facility (the largest in the world) and the Kurais oil field (Saudi Arabia’s second largest) at one point knocking half of Saudi Arabia’s energy production off line. Although Saudi officials are rushing to get at least some of the lost production back up and running, investors have taken this as a stern reminder of the risks to energy supply from rising Middle East political tensions.

This morning finds both WTI Crude and Brent Crude up over 10% with WTI back above $60.00/bbl and Brent above $75.00/bbl. US President Trump has ordered the country’s strategic petroleum reserve to be used to offset any shortfall in supply but even then, US gasoline is up 9.8%, US heating oil is up 8.3% and natural gas is up 2.6%. Dow futures are down 83 points or 0.3%, while the Dax is down 0.5% and the Hang Seng fell 0.8%.

Stock markets around the world have been falling this morning in response to the news as this news has eroded complacency and reminded investors that there remain significant political risks out there which could have a negative impact on the world economy. In addition to Middle East tensions, the US-China trade war and Brexit remain unresolved. Over the weekend China reported disappointing retail sales (7.5% vs street 7.9%) and industrial production numbers (4.4% vs street 5.2%), reminding investors of the high stakes involved in current negotiations.

That being said, investors should note that oil prices still remain well below their 52-week high which was closer to $75.00 for WTI and are nowhere near the $100.00/bbl levels seen earlier in this decade, so thoughts of this oil price jump tipping the world economy into a recession seem premature. It will be interesting to see if this forces any changes to what the Fed says or does at its meeting on Wednesday (current expectations are for a 0.25% rate cut).

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