Video Market Update: Crude Market Setting Up for Autumn Fall?
August 18, 2017 Update
Good afternoon. This is James Cordier of OptionSellers.com with a market update for August 18th. A couple weeks ago, when we were chatting last, I was venturing a question: How high is high in the stock market and when will investors and computers, of course, decide to pull the plug on buying and actually see a two-tiered market? It’s possible that we just found out “how high is high”.
So often, over the last 6-9 months, a lot of the stock market rally was considered a Trump rally because of very business friendly implementation of some of his ideas… less regulation, lower taxes, of course interest rates barely above zero. It’s certainly a great atmosphere for the stock market to rally. Watching TV, watching the news, and the coverage of Washington right now, it’s really difficult to see how some of these plans and ideas that Donald Trump brought to the market will be implemented.
Right now, on a 4-wheel car, I’m not sure how many wheels are left on right now. One or two have certainly come off, and hopefully we are able to put those back on, but implementing some of the great ideas that seemed to have propelled the stock market to all-time highs recently simply have vanished. Hopefully, throughout the remainder of this year and possibly next, things in Washington will start getting squared away and some of the ideas that people were so excited about and reasons to buy in the stock market will come back.
Certainly, had the election last November been different, would the market have rallied this much? It’s not really very clear to know exactly which way that might have gone; however, if some of these ideas are not implemented, does the stock market then give back what it gained since last November? Certainly that would be a heck of a correction that a lot of people would certainly open their eyes to. It’s not impossible to think that that could happen.
Fortunately, OptionSellers.com sells options on commodities that we’re able to count, and not so much worried about how many Apple phones were sold last month or last quarter. That brings me up to one of my favorite topics and that is seasonal trades in summer. We are looking at the crude oil market. There has been a lot of discussion lately that the crude oil market is now balanced because of OPEC production cuts. We don’t think it is balanced at all.
The months of July and August often have the greatest demand for gasoline here in the United States. Of course, the U.S. is the largest consumer of energy of any nation in the world, so when everyone is out driving for summer vacation it does make a difference and it does create a large amount of demand for gasoline. The last 60 days was the largest gasoline consumption in the United States ever in history. That has helped keep the price of crude oil higher. We did reach in the very low 50’s recently. 50 and 51 was kind of the cap in the market recently. It’s starting to show some cracks in the price and probably the seasonal factors that are coming up. Crude oil, which was recently around 50, is now trading around 47.
As we leave driving season in the United States, we feel that the extra barrels from Libya, Nigeria, and, of course, west Texas here in the United States is going to start creating more of a glut than a balanced market that a lot of people are talking about. We do see crude oil starting its descent in September and October, and in November and December we can expect to see crude oil all the way down to $40 a barrel, and possibly get a $3 handle, 38-39.
Everything will be determined, as far as the price, based on what type of compliance OPEC follows through on. We see a couple culprits already, including Saudi Arabia themselves, cheating on some of the quotas that they are participating in. We are selling crude oil calls in the mid-60’s for June and July delivery for next year. We think that as crude oil hits a near 40 later this year, those options are going to be showing a quite large amount of decay, probably 90% of what we sold them for. Of course, all of our clients know we buy them back at approximately 10% of what we sold them for, and we expect we’ll be doing that again in November and December.
Anyone wanting more information from OptionSellers.com can visit our website. If you’re not already a client of ours and would like to become one, you can contact Rosemary at our headquarters about possibly becoming one. As always, it’s great chatting with you. I’m looking forward to doing so again in 2 weeks. Thank you.