Fort McMurray wildfire, Saudi actions boost Monday oil futures

Dismal Friday jobs report also adds fuel to speculations that the Fed won’t raise interest rates in June, lending a positive tone to stocks before the opening bell.

Fort McMurray wildfire rages near Alberta, Canada oil sands near Hwy. 63. (Image via Wikipedia entry on the fire by DarrenRD, CC 4.0 international license)

WASHINGTON, May 9, 2016 – After a dismal start to May, stocks are looking up a bit some two hours before Monday’s opening bell on Wall Street. As of 7:30 a.m., Dow, S&P 500 and NASDAQ futures are up modestly with the Dow Jones Industrials futures up 51, the S&P up 6.50 and the NAZZ up 14.25.

Weekend news on the oil front may be adding to the positive tone. The Canadians have been struggling with a massive wildfire south of Fort McMurray, Alberta, a blaze that’s dangerously close to its huge oil sands deposits, completely shutting down production there. The fire, according to CNBC,

“…knocked out over a million barrels in daily production capacity, but caution among investors prevented a return to late April’s 2016 price highs.

“The lost capacity is equivalent to well over a third of the country’s typical daily production, and almost all of Canada’s crude from oil sands is exported to the United States…. The fire, which broke out on May 1, has forced three major oil firms to warn they will be unable to deliver on some contracts for Canadian crude.”

Saudi Arabia also contributed somewhat unsettling news as well, CNBC continued, citing a news brief from Reuters.

“Markets were also watching Saudi Arabia, the world’s biggest oil exporter, where a government shake-up over the weekend included the appointment of Khalid al-Falih as head of the new Ministry of Energy, Industry and Mineral Resources.

“‘Changes in Saudi Arabia oil leadership only underscore the shift in strategy to one focused on market share over price,’ Morgan Stanley said.”

The Saudi news doesn’t appear earth-shattering. The new energy minister is expected to continue the desert kingdom’s “market share” policies, which have contributed to the oil market’s year-long price dive.

The Canadian news, however, coupled with production declines in Brazil, Nigeria and elsewhere are putting at least a temporary floor under oil prices. The Canadian fire, in particular, has put American West Texas Intermediate (WTI) on a par with North Sea Brent Crude, the usual world standard price. Both WTI and Brent are currently trading in the $45 bbl. range.

Friday’s lackluster jobs report boosted speculation that the Federal Reserve is unlikely to raise interest rates in June, though that’s still no guarantee. This, plus oil, plus the tapering off of Q1 earnings season reports are apparently combining to give investors at least a one-day break from the market’s May swoon.

Friday’s dismal 160,000 increase in non-farm jobs is also apparently adding to Wall Street’s newly revived “bad news is good” meme, in that this anemic number is likely to stall the next Federal Reserve interest rate increase further. That said, administration comments echoed by the usual mass-media tools, claimed the number wasn’t really too bad, as increase figures are close to the “ideal” 200,000 figure.

As we’ve frequently reminded readers, that magic number was 300-350,000 in the early days of the Obama Administration when the White House was still eager to blame the Bush Administration for everything. It’s a little tough to do that now. The U.S., and indeed, the world economy is apparently stuck in neutral right now largely due to clueless national governments more interested in saving themselves and their rich friends rather than doing what’s necessary to get economies and individuals back to work.

Trading diary

If markets are up nicely today, we may try to increase our position slightly in the double-short S&P 500 ETF we’ve started using as a Sell in May hedge. Both we and our advisory services seem to agree that at least according to the charts, all markets have either topped or are topping, meaning that the May decline is more likely than not to resume.

Despite the ongoing bond disaster in Puerto Rico, muni and corporate bonds both remain strong. Smaller investors, like the Maven, favor ETFs like MUB (muni bonds) and TLT (U.S. Treasurys) in this environment. The Maven likes Pimco’s Municipal Income ETF (PMF), which currently boasts a 5.83 percent mostly non-taxable yield and consistently scores in Morningstar’s top percentile in this category.

However, we’re constantly on the watch for Fed interest rate moves. Another jump in rates will likely deal a severe initial hit to our much reduced portfolio, which is currently overweight in term preferred stocks and similar vehicles such as the muni ETF area. The rest at the moment is cash plus a tiny dollop of RHS, Guggenheim’s equal weight S&P 500 consumer staples ETF.

DarrenRD, CC 4.0 international license.

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