|Dow||-36.87 to 18,126.12|
|S&P 500||-2.69 to 2,120.79|
|Nasdaq||-8.61 to 5,097.98|
|10-YR Yield||-0.005 to 2.13%|
|Gold||+2.60 to $1,188.20|
|Crude Oil||+$0.36 to $57.87|
Bloomberg didn’t mince any words with its headline here. It reads: “The Tanker Market is Sending a Big Warning to Oil Bulls,” with a picture of an oil ship anchored off the coast of California thrown in for good measure.
The gist of the story: Demand for oil supertankers is surging. The rate to charter an oil-hauling behemoth recently jumped 57% in only two weeks. It now costs a whopping 69% more, or roughly $45,000 per day, to hire a 2 million barrel tanker, compared with May 2014.
In the Middle East region alone, spare capacity is the tightest it’s been since at least 2009. That has helped send shares of supertanker operators up by 20% or more year to date.
And all of this is characterized as “bad” news. A major warning for anyone who owns energy stocks. After all, clearly every charterer of these ships – especially the giant OPEC producers with decades and decades of experience in the energy market – know nothing.
|Oil tankers: Meeting worldwide demand.|
They’re hiring ships left and right because they want to flood the world market with oil forever. They want to cut off their noses to spite their faces. They’re going to … I don’t know … pay tens of thousands of dollars a day for these ships to sail around in figure eight patterns across the Atlantic, Indian and Pacific Oceans because they have nothing better to do.
Or maybe there’s a much simpler explanation: They have customers for the oil! People want it. Demand is on the rise, and the companies hiring these ships are trying to meet it.
With so much attention focused on oil supply lately, few in the mainstream press are talking about oil demand. Like the fact global demand growth bottomed out a year ago, according to the International Energy Agency (IEA). Then it accelerated to 900,000 barrels per day in the fourth quarter of 2014, and is accelerating again to around 1.1 million or more BPD now.
Here’s something else to ponder: Do you know when tanker demand and tanker rates last plunged severely? In 2008-09, when the global economy and crude prices were crashing. Those tanker declines were therefore “bad” news for investors, particularly in energy stocks.
So how in the world is the exact opposite thing – a rise in tanker rates and demand – now “bad” news, too? Or a harbinger of doom for energy stocks? Does that make sense to you? Or could it be that demand is actually improving, and with energy stocks already priced for Armageddon, there’s value to be had?
|“People want it. Demand is on the rise.”|
It should be obvious which way I’m leaning. But let me open the floor up to you.
Do you think this rise in tanker demand is bullish or bearish for oil and energy investors? Is it a sign that OPEC wants to hold tanker races in the middle of the ocean? Or could it be that demand is actually picking up? Where would you invest in the energy sector in light of this news? Let me know over at the Money and Markets website.
|Our Readers Speak|
What to make of the latest “non-confirmation” of new highs in the markets by the Dow Transports? Is it a major warning sign, or just another minor hiccup? You weighed in on that topic over at the website, so let’s briefly recap.
Reader Frank said: “It has been six months since the Dow Transports hit their high and the same for Dow Utilities. But the Dow Industrials just keep humming along. Does the Dow Theory not apply anymore?”
Reader Al added: “You ever hear the old saying, ‘The bigger they are, the harder they fall’? Well, that’s the stock market. The higher it goes, the lower it’s going to fall.”
As for the reasons behind the transport weakness, Reader Tommr offered this theory: “I have contended here before that the Federal Reserve is NOT acting to ‘stimulate’ the economy at all, but rather to suppress it! How? By pushing interest paid on savings down to next to nothing.
“By doing this ‘financial repression,’ as it is called, it is depriving most people of the income they would otherwise receive on their wealth. How could this condition allow and encourage those same people to spend and consume? Obviously, it does not! The sooner the Fed takes its foot off our necks, the sooner people will start to spend again!”
Thanks for sharing your thoughts. I agree with Reader Frank that Dow Theory is still important in this day and age, and the nonconfirmation from transports and utilities is a yellow flag for markets overall. And Reader Tommr is on the mark with the Fed – trying to hold down borrowing costs for debtors is shafting savers and crushing interest income.
I’ve been coping with this environment by not just “buying the Dow.” Rather, I’ve been focusing on a few beaten-down sectors where virtually every piece of negative news is already discounted. I have also been zeroing in on a few “private bull market” sectors that have powerful sector-specific fundamentals driving them.
Lastly, Reader Steven made a funny observation on the FIFA scandal – which looks a lot like the scandals rocking the banking sector. His take: “So FIFA has been making ‘soccers’ out of us, while playing us for the fool for years? I wonder if they have been taking any pages out of NFL’s playbook?”
Great stuff! Make sure you add to the discussions at the website when you have time if you haven’t already. This link will get you pointed in the right direction!
|Other Developments of the Day|
There’s another mega-merger in technology today – Avago Technologies Ltd (AVGO) is buying Broadcom (BRCM) for $37 billion in cash and stock. The deal will broaden Avago’s line of semiconductors.
Want to pressure a corrupt organization to change its ways? Use the power of the purse! That’s what companies like Visa (V), Coca-Cola (KO), and others are doing to FIFA in the wake of the soccer organization’s global bribery and corruption scandal. They’re threatening to pull sponsorships and marketing agreements if FIFA doesn’t clean house.
Generous pension promises made years ago … and the redirecting of pension funds to other projects … are coming back to haunt municipalities and states around the U.S. Illinois has been getting a lot of press lately. But places like Harrisburg, Pennsylvania are also suffering – being forced to borrow money via bond issuance because incoming revenue isn’t covering the bills. This interesting New York Times story looks at the causes and consequences of this simmering, slow-motion crisis.
Chinese investors better have some strong stomachs – because the swings over there are enough to give almost anyone seasickness! The Shanghai Composite tanked 6.5% overnight … but the large move came after an eight-day winning streak that pushed stocks to multi-year highs. Fasten those seatbelts!
What do you think about the fraying of the pension system? The latest mega-merger in tech? Or other topics in the news? Let me know over at the website.
Until next time,