Alan's Alert 6-16-2021

 

I have a running joke with a contractor friend of mine about the ridiculousness of the lumber industry.  We’ve traded memes back and forth.  Some of the best ones were; the most expensive place to take a girl on a date is the lumber section in Home Depot and that toothpicks could be sold as lumber seeds.  While lumber futures (ticker /LBS) have come down from their highs, they are still well elevated from what many would call normal.  We’ve seen similar reactions in futures markets for Corn (/ZC), Lean Hogs (/HE), Copper (/HG), and soybeans (/ZS).  While the lumber industry has its own unique quirks, it’s a bit of a shock to see the same scenario play out in unrelated markets.  Could oil and gas be the next markets to experience a similar run?

 

This morning the EIA (Energy Information Administration) released their gas and crude oil stocks report.

The report on crude oil inventories showed that it dropped by 7.355 million barrels during the June 11^th week.  This represents a fourth consecutive period of decline.

The gasoline report showed an increase of 1.954 million barrels.  This was opposite of market expectations of a drop but you can see from the chart of gasoline inventories that we are swiftly moving back to depleting inventories.  This comes as the summer driving season is beginning, as well as air travel increasing.  Here’s a summary report for TSA screened passengers on average by month:

We are well off the shutdown lows and as you can see below, oil futures (ticker /cl) have rebounded completely.

Now I’ve been holding Continental Resources (CLR) since 4/13/20.  I also have options on USO that were purchased 2/8/21 & 4/29/21.  I’m confident that this story isn’t over.  The Fed has pushed too much money into the hands of consumers for us to only be back where we began.  This money has made its way into the retail and real estate sectors of the economy.  We are seeing record prices for used vehicles.  I hear ads on the radio now about turning in your old RV because RV sales have gone through the roof.  I believe we will continue to see crude climb and I plan to be ready to add to my holdings when down days come.  I love buying on red days and selling on green ones.

 

As a reminder, the Federal Open Market Committee (FOMC) concludes their meeting today after which, they’ll release some economic projections, their interest rate decision and hold a press conference.  They hold eight of these meetings a year.  Only four of these meetings are associated with economic projections.  The market typically gets pretty excited about such matters but there is rarely anything groundbreaking that will be revealed.  The Fed doesn’t like to surprise the market, so they’ll announce well ahead of time what course they plan on plotting.  I’ll cover any details in tomorrow’s alert, in the meantime, here’s a sneak-peek into what the meetings look like.