Oil Production Attacked and Trade Talks Remain Uncertain

23 Sep

Stocks ended the week modestly lower.  Saudi Arabia had two major oil facilities attacked.  As the week progressed it became evident that the drones and cruise missiles came from Iran.  The attack removed 5% of global oil production.  Still given the global inventory levels, the missed production is unlikely to create any kind of shortage with 30 International Energy Agency member countries, including the U.S., pledging to release strategic reserves if that becomes necessary.  As of Tuesday, Saudi Arabia claimed to restore half of the lost production and pledged to have the remainder back on line within weeks.

The Federal Reserve met this week and lowered the target short term interest rates by 0.25%.  Also, the FED had to intervene in the repo market to keep the overnight lending rates between banks from rising.  The pressures relate to shortages of funds banks face resulting from an increase in federal borrowing and the central bank’s decision to shrink the size of its securities holdings in recent years. The FED reduced these holdings by not buying new ones when they matured, effectively taking money out of the financial system.  UAW members went on strike at General Motors for the first time in 12 years.  By weeks end, layoffs occurred at many parts suppliers due to the work stoppage.

On Friday, mid-level Chinese trade negotiators left the U.S. early, which sparked fears that the trade war may not get resolved in October.

In economic numbers this week:

  • China’s National Bureau of Statistics reported that China’s industrial Output rose 4.4% in August from a year ago, down from 4.8% year over year in July.
  • The Federal Reserve reported that industrial production rose a stronger than expected 0.6% in August.  Industrial output includes factory, mining and utility production.  Factory output increased 0.5%, mining (which includes oil and gas production) increased 1.4% and utility production rose 0.6%.  From a year earlier industrial production rose only 0.4%.
  • The Commerce Department reported U.S. housing starts surged 12.3% in the month of August.  Multi-family starts increased 32.8% and single family starts increased 7.7%.  However, for the first eight months of 2019 starts declined 1.8% from the same period last year.  Declining mortgage rates and rising wages were attributed to the increase.
  • The National Association of Realtors reported that existing home sales rose 1.3% in August from July.  Existing home sales were up 2.6% from a year ago.  The median sales prices was $278,200 up 4.7% from a year ago.
  • The Labor department reported first time claims for unemployment rose 2,000 to a seasonally adjusted 208,000 last week.  The four week moving average of claims fell to 212,250.
  • The EIA weekly oil report is here wpsrsummary.  Also, the EIA reported in the past week:
    • Field production of crude oil was unchanged at 12.4MM barrels per day.
    • Natural gas storage increased by 84BN cubic feet and is still below the five year average at this time of year.

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Loren C. Rex, CFP®, AIF®, MA                                                              Erik A Smith

President                                                                                               Managing Partner

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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.