Welcome to CrushTheStreet.com’s Weekly Market Wrap Up!
The crude oil market is back in focus and is this week’s top story. After Federal Reserve Chair Janet Yellen’s non-announcement regarding a widely anticipated interest rate hike, virtually the entire commodities sector received a sudden lift in valuation. With the implied admission that the overall economy isn’t as robust as was originally advertised, the dollar sank, halting what has been an unprecedented rise in the greenback. This led to inflation for American consumers but for entities that purchase oil in foreign currencies, the dollar drop led to a deflation in commoditized expenses, according to a recent report from The Wall Street Journal. Taken as a whole, the fundamentals certainly suggest that the oil market is headed for a recovery. But with so much uncertainty in the geopolitical climate, how much trust can investors place in this near-term rally?
On paper, the international benchmark for oil prices, Brent crude, has been one of the hottest financial sectors for the opening quarter of 2015. Since dropping below 48-dollars on January 12th, the index has recovered over 16-percent of valuation. Several oil producers and industrial equipment providers have likewise seen signs of life from their equity valuations, with some names in particular jumping well ahead of the gains witnessed in the crude oil indices. A good chunk of the sentiment shift can be explained away by technical weakness in the greenback, with the Dow Jones Dollar Index losing over 150 points during a 5-day period starting on March 19th.
However, another reason for the rise in crude is market manipulation. One of the strangest episodes in the ongoing oil drama is California’s cost of retail gasoline, which surged past the national average in February despite the underlying indices absorbing a 50-percent haircut. According to the Los Angeles Times, state senators oversaw a hearing that was rife with accusations of price-fixing and other illegal practices. Central to the heated debate is the assertion that a small pool of refiners are colluding to artificially lift prices higher. Jaime Court, president of Santa Monica advocacy group Consumer Watchdog, vehemently denies the free-market argument proposed by big oil apologists, who state that a February 18th explosion at an Exxon-Mobil refinery led to lower supplies for Californians, and thus, higher prices. Instead, he believes that refiners work together to limit capacity and thereby manipulate the market. Coincidentally, earlier in February, oil refiner Tesoro idled their production at its Martinez California plant due to a labor strike. In addition, Mr. Court notes that California facilities keep far lower inventory levels than facilities in other parts of the country, making it susceptible to any shortage problems, real or manipulated. Further complicating matters is that competition is very tight in that state’s market, with Chevron and Tesoro together controlling 55-percent of market share.
Despite taking vicious hits in benchmark valuations, oil producers throughout the world remain resilient and as the California incident may prove, are not above questionable practices to continue churning a profit.
In financial news, the U.S. equities sector slid for the fourth consecutive time on Thursday, essentially erasing last week’s gains. The Dow Jones has lost nearly 440 points since the start of the week, while the S&P 500 sits below its 50 day moving average with a closing price of 2,056 points. On the other hand, the precious metals complex has been quite the revelation, with gold capping off seven consecutive bullish sessions and finally surpassing the 1,200 dollar mark, while silver enjoyed phenomenal gains, gapping up to over 17 dollars. Palladium was the odd-man out, but did manage to squeak above 770 dollars on Thursday. Finally, in digital currency news, bitcoin tumbled throughout the week after it failed to secure 300 dollars, eventually landing at 250 dollars at last count.
And that will do it for this edition, thanks for watching and we’ll see you next week!