View From The Hill: November 23, 2015

Inflection Point In Long-Term Trend For Energy Prices?

The most impressive performance today was delivered by WTI Crude Oil. The Saudis are expressing a willingness to cooperate with other OPEC members and non-member energy producers in order to stabilize future global energy prices. The “oil market-share war” has taken out some of North America’s shale producers, but MENA (Middle East North Africa) is suffering collateral damage as well. At next week’s OPEC meeting, they have plenty of motivation to reconsider realigning their strategic production ceiling which is currently @ 30 million barrels per day:

A -43% drop in oil prices over the last 52 weeks.

Majority of OPEC members’ GDP is derived from energy revenues which are used to subsidize spending programs and counter-balance social unrest and geopolitical destabilization.

Reality of slower global economic growth in Asia and Europe exacerbating the supply-demand imbalance or oil glut.

This is not to suggest a 180-degree trajectory in energy prices anytime soon, but the above does suggest we may be at an inflection point in the long-term trend for energy prices, despite the potential for further short to intermediate bearish price trends.

Meanwhile, the U.S. economy may be decelerating as today’s Manufacturing Index Flash report for November-2015 came in @ 52.6 vs. consensus @ 54.5 and prior month @ 54.0. This news alone was sufficient to release some pressure on bond investors as treasury rates retreated for both the 10-year and30-year government securities.

In Real Estate, U.S. Existing Home Sales in October-2015 declined -3.4% monthly and contracted annually to 3.9% vs. previous readings @ 8.8%. The report, which had actual sales @ 5.36mm vs. prior @ 5.55mm, suggests that real estate may not be as strong a source of economic growth as perceived. However, the data did not have any negative impact on the Dow Jones indexes for Real Estate or Homebuilders in today’s trading.