Artwork by Elias Stein
Text size
Oil prices fell 1.8% last week, even after OPEC and its allies extended production cuts through 2024, which took 3.5 million barrels a day off the oil market . Saudi Arabia also said it would cut output by a further million barrels in July, cutting daily output to nine million barrels, the lowest since 2013 outside of the pandemic.
Still, oil prices per barrel remain mired in the mid-$70s, even though most analysts have price targets well above $80.
For what? Oil has a confidence problem – many investors don’t believe official supply and demand data. Oil statistics are often disconnected from the physical market. Tanker data suggests that Russia’s vow to cut production by 500,000 barrels a day never materialized.
OPEC lowered the production quotas of four African countries that had already underproduced their quotas, resulting in only a name reduction.
Even the U.S. Energy Information Administration recently made major adjustments to the estimates, which it attributes to greater complexity as the U.S. exports more crude oil and petroleum products.
“The physical market is undefeated,” writes Michael Tran, analyst at RBC Capital Markets. He argues that the real oil market has roughly enough supply to meet demand, even if the “official” market indicates that there is insufficient supply: “This disconnect has contributed to analysis paralysis. ..and subsequently led to poor positioning, a lack of risk deployment and the drying up of liquidity”.
A country where investors trust official records increases production. Under the latest OPEC deal, the UAE will be able to increase production by 200,000 barrels per day. It’s a safe bet that these 200,000 will actually come out of the ground.
Next week
monday 6/12
Oracle
publishes its results for the fourth quarter of fiscal year 2023.
tuesday 6/13
Home deposit
hosts its 2023 Investor and Analyst Conference.
The Labor Office Statistics publishes the consumer price index for the month of May. The consensus estimate calls for the CPI to rise 4.2% year-over-year, while the core CPI, which excludes volatile food and energy prices, is expected to rise 5 .2%. That compares to gains of 4.9% and 5.5%, respectively, in April.
The National Federation of Independent Business publishes its Small Business Optimism Index for the month of May. Expectations are for a reading of 89, matching April data. The index remains mired well below historical averages as small business owners struggle to find skilled workers for vacant positions.
Wednesday 6/14
Lennar
publishes results for the second quarter of fiscal year 2023.
black rock
is holding its 2023 Investor Day.
The Federal Free Market The Committee announces its monetary policy decision. Traders are banking on a 26% chance that the FOMC will hike the federal funds rate by a quarter of a percentage point to 5.25%-5.50%. Pause, jump or rise has been the debate on Wall Street since the last central bank meeting in early May. The most likely outcome is for the FOMC to skip this meeting but raise interest rates by a quarter of a percentage point at its next meeting in late July.
BLS press releases the May producer price index. The PPI is expected to rise 1.5% year-over-year, nearly a percentage point less than in April. The core PPI is expected to rise 2.9%, three tenths of a percentage point less than before. The PPI is currently at its lowest level since January 2021.
Thursday 6/15
Adobe
announces results for the second quarter of fiscal 2023. Analysts polled by FactSet expect the company to earn $3.79 per share, up 13% from the second quarter of last year, on sales of $4.8 billion, an increase of 9%. Shares of the software maker have risen 35% this year, slightly outpacing the Nasdaq 100.
Kroger
organizes a conference call to discuss the quarterly results.
The European Central Bank announces its monetary policy decision. The ECB is widely expected to raise its main short-term interest rate by a quarter of a percentage point, from 3.25% to 3.5%. Traders are expecting at least one more rate hike after this next meeting as inflation has proven to be more stubborn in the Eurozone than in the US.
The Census Bureau reports retail sales data for the month of May. The consensus call is that retail spending remains flat month-over-month at $686 billion, following a 0.4% increase in April.
Friday 16/06
The University of Michigan publishes its consumer sentiment index for the month of June. Economists forecast a still austere reading of 60, one point higher than in May.
Write to Avi Salzman at avi.salzman@barrons.com