Yikes!
If your coffee isn’t giving you enough of a jolt this morning, just check out this chart from Bank of America.
It shows how U.S. stockpiles of oil have collapsed. They are now a third below their long-term average levels and at the lowest levels since 1982.
We usually have more than two months’ supply of crude oil. We’re down to 46 days.
This is one reason why oil
CL.1,
BRN00,
is now at a 10 month high.
This follows steep production cuts by leading oil exporters Saudi Arabia and Russia (the latter, apparently, able to afford them despite about 18 months of global sanctions due to its invasion of UKraine).
Meanwhile, “world oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” reported the International Energy Agency.
The IEA says inventory levels are low worldwide.
This comes at the end of the U.S. summer season, traditionally a time of very high demand. The picture may improve this fall.
But it leaves the economy at risk from an oil shock. Combined with record high house prices and rising interest rates, it means 2020 is looking a little more like early 2008 than investors might find comfortable.
Predictably, big money managers were giving up on energy stocks (and commodities generally) in June and July, just around the time they… er… bottomed out. Since the start of July the SPDR Energy Select Sector ETF
XLE,
which tracks U.S. energy stocks, has earned you a storming 11%.
Over the same period, the figure for the rest of the stock market
VTI
is about 0.4%.
By funny coincidence the market just passed the three-year anniversary of the day oil giant Exxon Mobil
XOM,
was kicked out of the Dow Jones Industrial Average
DJIA,
to be replaced by cloud software company Salesforce
CRM,
The media hailed this as a landmark of the new economy, and of the imminent death of oil and fossil fuels.
Since then Exxon stock has more than trebled in value, earning 230% including dividends.
The Dow? Try 29%.
Meanwhile Salesforce stock has lost about 19%.
The death of oil, like the infamous 1979 “death of equities,” may have been exaggerated.
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