Not so fast: Oil glut is far from gone

Alexander Alternative Capital - OPEC Oil Wells

MIAMI (August 15, 2016) ---Hopeful investors in search of higher oil prices may well be in for a disappointment despite headlines that the Saudis might pull off an OPEC agreement late next month to freeze production.

West Texas Intermediate Crude futures were up 16 cents to $44.65 a barrel this morning while Brent crude futures were trading at $47.10, up 13 cents. Giddy traders pushed the prices upward late last week after Saudi Energy Minister Khalid al-Falih said his country would move to help stabilize prices. OPEC has scheduled a meeting in Algeria for September 26 and many investors hope a deal will emerge to freeze production.

But some analysts rightfully are warning that the market is in the midst of a short covering rally. Demand is not outpacing supply as fast as the rates forecast by the International Energy Agency.

Meanwhile, Baker Hughes rig figures showed another strong rise in U.S. drilling activity with the number rising by 15 to 396. The rig count has been on the rise as producers have adjusted to lower prices.

Alexander Alternative Capital is looking at $33 oil. We believe that favorable demand forecasts are in curious abundance despite obvious evidence of reduced economic activity around the globe.

Japan turned in disappointing growth data with the world’s third largest economy missing forecasts and failing to grow in the three months through June. The cabinet office reported gross domestic product (GDP) was unchanged in the April to June quarter from January to March. Analysts doubt that Prime Minister Shinzo Abe’s massive stimulus program in July is enough to lift the country out of the doldrums.

Germany's GDP figures also lagged last Friday as retail sales, industrial production and exports are all staling. One can only imagine the impact on the rest of the EU as a ripple effect from the bloc’s largest economy starts to spread.

The subdued numbers will likely revive doubts over Japanese Prime Minister Shinzo Abe's efforts. Europe's powerhouse could be stalling. German economic growth looks set to show a dip in the second quarter, raising questions about the health of the euro zone's largest economy in the wake of the Brexit vote.

In the U.S., one also has to wonder about expectations for accelerated growth in the third quarter as retail sales were surprisingly flat for July as consumers pared purchases of clothing and other goods. The Commerce Department said last Friday that the results followed an increase of 0.8 percent in June.

The July results represented a significant cooling off – and perhaps an exhausted consumer -- after the second quarter's 4.2 percent rate of increase.

Natural Gas

According to the U.S. Energy Information Administration, natural gas spot prices fell at most locations outside of the Northeast during the report week of Wednesday, August 3, to Wednesday, August 10. The Henry Hub spot price fell from $2.88 per million British thermal units (MMBtu) to $2.73/MMBtu yesterday.

The EIA said the September 2016 contract fell 28 cents at the New York Mercantile Exchange from $2.839/MMBtu to $2.561/MMBtu.

Corporate earnings

Twenty-one companies representing 4.4% of the S&P 500 will report second quarter results. They include Home Depot, Cisco, Wal-Mart, Lowe’s, and TJX Companies.

With more than 90 percent of company managements reporting, earnings have been beating expectations by 3.9 percent with revenues ahead by 0.1 percent, according to Capital Economics. “Companies beating on both the top- and bottom-lines jumped 1.9% (vs. 1.9% on average), while those missing on both have been punished by -2.8% (vs. -3.0%).”

Florida Alternative Investment Association

We again reiterate the two forthcoming hedge fund events in the second half of this year that will be conducted in South Florida and sponsored by the Florida Alternative Investment Association (FLAIA) .

The first event, “Opportunities in the Energy Space 2017, will take place on October 21 in Miami.

The second event, “Global Macro Perspective in 2017,” will take place on November 29, also in Miami.

Agenda details are forthcoming.

Our Watch List this week:

Monday:

--Housing Market Index

Tuesday:

--Consumer Price Index

--Housing Starts

--Industrial production

Wednesday:

--Mortgage Applications as reported by MBA