June has been a crazy month for market-moving global events, and the tail end of this week is shaping up the same way, if OPEC succeeds in shaking up the status quo.
The next 24 to 48 hours could turn into a “headline-driven-free-for-all, so buckle in,” is the sage advice from OANDA’s head of trading, Stephen Innes.
He’s referring to this week’s three-day OPEC summit, which ends Saturday. In the spotlight, oil-producing powerhouses Saudi Arabia and Russia are broadly expected to push through an output increase ahead of the expiration of a pact to keep supply under control. Oil is taking a hit this morning on signs Iran may be ready to sign onto any deal.
That brings us to our call of the day from analysts at Barclays, who say watch out for a curve ball from the crude-producing gang.
A “lack of consensus on any output increase,” is the risk for investors, say analysts Ajay Rajadhyaksha and Michael Gavin in a note to clients.
That could mean higher oil prices, they add, because “even if Russia and Saudi Arabia raise output unilaterally, it would leave OPEC’s spare capacity cushion thin by historical standards.”
And that provides upside risk for a commodity whose rally stalled out in the second quarter, they note.
Saudi Arabia holds most of OPEC’s spare oil capacity — the volume of production that can be brought on within 30 days and sustained for at least 90. If the Saudis boost their output materially, then that would leave capacity pretty tight for the cartel, according to Shin Kim, head of oil supply analytics at S&P Global Platts.
In a note to clients, Kim lays out a laundry list of supply worries out there: concerns about Iran production due to looming U.S. sanctions; a messy Venezuela situation; signs of fighting in Libya; and in Nigeria, an election and possible attacks on oil facilities in 2019.
“With relatively low inventories, strong demand, and substantial risks to Iranian (and other) barrels, limited spare capacity means higher prices for longer,” says Kim.
Indeed, oil execs and even Norway’s government are among those who have been talking $100 oil recently.
Saudi Arabia is the place to watch for more reasons than one, as it just snagged coveted emerging markets status from index compiler MSCI. That could mean billions of investment dollars and good news for that Saudi Aramco IPO the country has promised.
The market
The Dow DJIA, -0.80% , S&P 500 SPX, -0.63% and Nasdaq COMP, -0.88% are all off to a slow start.
European markets SXXP, -0.90% are down, led by Italy I945, -2.02% , as politics rattle nerves again. Asia ADOW, -0.27% was a mixed bag, with losses in China, but a big win in Australia XJO, +0.16% .
Gold GCU8, +0.00% is lower, while crude CLU8, +1.09% is off as focus turns to OPEC. The dollar DXY, +0.00% is tearing higher, but not against the pound USDGBP, -0.1059% , which is moving up after another Bank of England policy maker joined those voting for an interest rate hike.
The chart
Ryan Detrick, senior market strategist at LPL Financial, has been taking at look at what happens when the S&P 500 has a year-to-date gain of more than 3% on the first day of summer. Since 1950, that’s happened 35 times — and every time, the market has ended the year higher.
“Bottom line, the full year has always been positive, but the rest of the year actually does much better as well,” Detrick says in emailed comments.
The buzz
Intel’s INTC, -2.38% CEO has resigned after violating the company’s “non-fraternization policy.”
Kroger KR, +9.74% is up over 8% after an earnings beat and guidance tweak. Better-than-expected results are also helping out Olive Garden parent Darden DRI, +14.79% this morning.
Micron MU, +0.83% is up after proving the doubters wrong again, with strong profit and sales and an upbeat forecast.
Smith & Wesson parent American Outdoor Brands AOBC, -3.25% plans to cut ad spending and firearm production as it projected a third tough year of sales. Shares are taking a hit.
SoftBank 9984, -2.45% director tells shareholders that the company’s breakneck pace of investment has him worried.
On the political beat, Trump told a huge Minnesota crowd that he’s more elite than the elite. His administration has backed down over separating migrant families — but many are wondering what will happen to the 2,500 kids still in custody. Elsewhere, teen immigrants say they were abused at a Virginia detention center.
Oh, and POTUS apparently tossed candy at German Chancellor Angela Merkel during the recent G-7 summit.
The quote
“While we regret that Google did not want to continue a long and fruitful tradition of collaboration between the military and technology companies, we are even more disappointed that Google apparently is more willing to support the Chinese Communist Party than the U.S. military.” — That was a letter from Republican and Democrat lawmakers urging Alphabet’s Google GOOGL, -1.24% to cut its ties with Chinese telecom group Huawei over security concerns.