Market Strategy 9/16/2019
- September 16, 2019
Look for Progress, Not Perfection
Geopolitics, oil, trade negotiations and the FED’s FOMC meeting on the front burner
Key Takeaways
- This week developments tied to the attack on Saudi oil facilities will garner attention but not dominate investor focus with a brace of economic data and the Fed’s FOMC outcome scheduled.
- The drones deployed in the attack underscore the ubiquitous nature of technology and the vulnerability of the global oil supply.
- Last week’s jump in US Treasury yields suggested a recognition by the bond market that it had overbid US safe haven assets.
- Last week’s economic data showed an increase in inflation that suggested the economy is likely growing at a faster pace than previously expected.
Over the weekend news of an attack on Saudi Aramco oil facilities by ten drone vehicles pushed oil prices higher. The price of oil “jumped the most ever” per Bloomberg news after Brent crude spiked more than $11 a barrel as oil began trading in Asia but later pared gains after the markets began to digest the news and its potential impact on global and regional supplies.
The attack cut into Saudi Aramco supplies and was expected to affect 5.7 million barrels or some 5% of the global market in the near term.
The initial jump in the price of oil was reported to be the biggest surge since Brent futures began in 1988 illustrating an appetite for volatility as well as concern.
The attack over the weekend is reportedly the single worst sudden disruption of the oil market from an historical perspective, surpassing the disruption of Kuwaiti and Iraqi petroleum supply when Saddam Hussein invaded Kuwait in August 1990 as well as the loss of Iranian oil output which occurred in 1979 during the Islamic Revolution per data from the US Department of Energy cited by Bloomberg News. Iranian backed Houthi rebels in Yemen claimed credit for the weekend attack.
So-called safe haven assets were bid higher on the news with upticks in prices of gold, the Japanese yen along with the currencies of several commodity-linked countries.
Expectations early on are for Saudi Arabia to reboot at least half or more of the oil production affected in the attack in the days immediately ahead with the balance of production affected taking somewhat longer.
With many issues tied to the trade war still unresolved we believe the markets “aren’t out of the woods yet” but at least are likely headed in the right direction for now.
Sovereign stockpiles and emergency oil reserves around the world (including that of the US Strategic Petroleum Reserve) are likely to help offset near-term disruption to supplies.
In our view the attack on Saudi Aramco oil supplies underscores the impact of developments in contemporary technology with “ten drone vehicles” believed to be responsible for the attack having such impact on global supplies.
The events over the weekend also draw attention to just how much things have changed in the global oil patch over the past two decades as reports in the press noted that Saudi Arabia ranked third in oil production in August trailing the US (#1) and Russia (#2) while staying ahead of Canada, Iraq and Iran.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
Other Disclosures
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation.
Investment Strategy should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2019.