GOAL IS SMOOTH
On Wednesday the U.S. Energy Information Administration (EIA) will report the status of the country’s commercial inventories of crude oil and refined petroleum products. Oil traders are behaving Tuesday as if the party that started with rising prices last week is back in full swing.
West Texas Intermediate (WTI) crude oil traded as high as $46.83 earlier this morning, up nearly 1.8% from last night’s closing price of $46.02. About half that gain had been given back by mid-morning.
Tuesday morning’s rising price was likely the result of two factors: the decline of the U.S. dollar and the early forecast for changes to the U.S. petroleum inventories. When the dollar weakens, the price of oil typically moves higher to pick up the slack in value for the commodity that is priced in dollars. The dollar was down about 0.6% earlier this morning, which many observers attributed to the failure of the U.S. Senate to pass its replacement for the Affordable Care Act. The inference among investors is that the Republicans, who control both houses of Congress and the presidency, will also be unable to push through a tax reform bill.
Regarding the U.S. petroleum inventories, analysts polled by S&P Global Platts have forecast that crude oil inventories fell by 3 million barrels last week, gasoline inventories dropped by 700,000 barrels, and distillate (diesel) rose by 500,000 barrels. Any inventory draw-down in crude oil or gasoline is greeted enthusiastically by investors, even though it is clear that the global crude oil market will not be rebalanced until the end of this year, at best, and maybe not until this time next year.
As we noted yesterday, the EIA is expecting oil production in seven major U.S. shale plays to rise by 113,000 barrels a day in the month of August following an estimated 124,000 barrel a day gain in July. More production, even during the peak U.S. driving season, does not support higher oil prices.
Some traders may be pinning their hopes for higher prices on a meeting later this month at which the OPEC management committee is going to discuss limiting production from Libya and Nigeria and perhaps increasing the level of cuts from other OPEC member nations. Chances that any one of these changes will be agreed upon are low; chances that all will be adopted are essentially nil.
And how about the futures market? With no sign of limiting production from U.S. shale fields and no realistic chance that OPEC is going to do anything to raise prices, the futures market has turned bearish after a run-up due to short covering in the week before the July 4 holiday. Reuters analyst John Kemp sums it up neatly: “Prices may therefore have to continue falling low enough for long enough to enforce a strategy correction from the shale drillers or OPEC.” Who will blink first this time?
By late Tuesday morning, WTI crude oil prices had added 0.9% to last night’s settlement price to trade at $46.45. The 52-week range on crude is $42.06 to $58.30.
Brent crude for September delivery traded up about 1% at $48.90 in a 52-week range of $44.60 to $60.18..
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The traditional American retirement age of 65 is in the rear-view mirror. Nearly a third of Americans between the ages of 65 and 69 are still working and nearly 20% of those between the ages of 70 and 74 are working at least part-time.
Many continue working because they are healthier and are living longer than past generations. Others forego retirement because they enjoy working or because they just want to remain active.
Still others need the money. Longer lives bring with them higher healthcare costs which, even with Medicare and Medicaid insurance, make retirement more expensive. The decline of a traditional pension plan has made it more difficult to save enough to retire on and stagnant wages over the past decade or so has added to the need to work longer.
Ironically, healthy, well-educated people with in-demand skills who are least likely to need the additional income are more likely to keep working than are those who have more demanding jobs. It’s easier to sit at a keyboard and pound out computer code or news stories than it is to work in the construction trades or another more physically strenuous job.
Still, just because someone wants to work longer does not mean that’s possible. A recent report at Bloomberg News explains:
When surveyed, 61% of American retirees say they retired sooner than they’d planned. That’s more than anywhere else in the world, according to the 2017 Aegon Retirement Readiness Survey, of 16,000 people in 15 countries. Globally, 39% of retirees say they quit working early. Even part-time work may be unrealistic. [The Employment Benefit Research Institute] finds that just 29% of retirees say they worked for pay at some point in their retirement.
There are now more Americans working longer than at any time since the creation of Medicare. And that number looks set to rise even more in the years ahead. The pressure on younger workers to find jobs will intensify unless the U.S. economy comes up with a way to grow faster than the anemic rate of the past few years. The prospects for that are arguabl
LARGE SALES DECLINE
SEARS GETS $200 MILLION LINE OF CREDIT
In a federal filing Monday, Sears Holdings Corp. (NASDAQ: SHLD) revealed that the company had received a $200 million line of credit from companies controlled by Sears Chairman and CEO Edward S. Lampert. The line of credit carries an annual fixed interest rate of 9.75% and has a maturity of 151 days.
Earlier this year Sears reached an agreement with its lenders that postponed a $100 million payment due this month until July of next year and a separate pension liability agreement that annuitizes some $515 million of the company’s pension obligations.
So far this year the company has announced plans to close around 250 Sears, Kmart, and Sears Auto Center stores and has sold its Craftsman brand in an effort to remain a viable company.
Regarding Monday’s announced line of credit, Sears CFO Rob Riecker said in a statement reported by CNBC:
This facility is intended to provide the Company with the flexibility to generate additional liquidity on an as-needed basis. This adjustment to our capital structure demonstrates that Sears Holdings will continue to take actions to generate liquidity and manage our business while meeting all of our financial obligations.
As long as CEO Lampert and his hedge fund are willing to finance the company’s unsecured debt, some investors will continue to buy the stock. Of course, Lampert’s hedge fund is not a charity and he could pull the plug on further lending at a moment’s notice.
Closing stores does help contain costs, but it also takes a toll on the top line. Profits may improve, but generating sufficient cash flow to meet the company’s obligations gets harder, making borrowing even more important. It’s a vicious circle that takes a long time to escape from.
For Monday, though, Sears is enjoying a boost of more than 8% in its share price to $8.72 shortly after the noon hour. The stock’s 52-week range is $5.50 to $18.18 and the 12-month consensus price target is $4.
The tepid May jobs report is disappointing but not necessarily surprising. Job creation was probably over due for a pullback, given the tight labor market and the trouble employer are having finding enough skilled workers. The modest gain of 138,000 in May points to slower but still decent growth in comiong months. The Federal Reserve is still on track to raise interest rates at its June meeting
Volvo is supposed to be the next major luxury car company in America. It has received a number of awards for its new models. But, for its statements about its American goals to be true, Volvo has to produce strongly growing sales, and garner market share from the market leaders Instead, it is losing a great deal of ground. Sales fell 15% in June to 7,303.
Not a single model posted impressive figures. Sales of its S90 rose 11,850% to 956, against a base of 8 last year,. Sales of the all-new XC90 were higher but only rose only 2.1% to 2,751. Sales of the S60, V60, and the XC60 were down in double digits.
The Volvo US experiment is among the first by a Chinese-owned company. It is owned by huge manufacturer Geely of China. If Volvo’s sales experiment continues, it may be a long time before another Chinese company tries again.
Uncle Sam is looking for ways to improve internet service in apartments and other multitenant buildings, such as malls, condos and college dorms. The Federal Communications Comm is scrutinizing rules for the telecom contacts that owners strike with web providers and even mulling preempting local regulations. Building owners should monitor the action, since it may affect who is allowed to install telecom services. Small telecom firms want the FCC to prevent a free for all on telecom wiring inside buildings, which they say harems long term investments and service. Google is a leading voice arguing for easier access to properties
PRICE OF OIL UP