Friday, December 5, 2014

Friday Wrap -- Jobs and Oil (Big Charts!)

First of all, here is the most important paragraph you will read all week:
“Those who travel with the current will always feel they are good swimmers; those who swim against the current may never realize they are better swimmers than they imagine.” (source)
Chew on that for a minute. Now, on to some economic-market analysis.

The employment news is excellent.
  • US employers hired 321,000 people last month.
  • This was the strongest month of hiring since January 2012 – almost two years ago.
  • We’re on track for the best year of job creation in 15 years.
  • Average hourly earnings rose 0.4 percent, the most since June of last year.
Quartz is collecting some beautiful charts on the U.S. jobs report and associated trends and facts. You can check out those charts HERE.

Here is one chart you should see ...

That chart shows the jobs being created are full-time jobs. Those are the kind of jobs we want.

What you can take away from all this is ... well, you know those people who have been telling you that you should sit out this rally because the economy is in the tank? Those people are lying to you.

Let's talk about energy.

There are those who say falling oil prices will hurt the U.S. economy. They're as full of sh*t as the people who have been ranting that the U.S. economy is in the tank despite rising payrolls.

Here is what you need to know:

Consumer spending represents 68% of the US economy. Oil and gas capex represents about 1% of US GDP and less than 9% of US total capex (which in turn represents about 12% of US GDP). Therefore, the benefit of lower energy prices to the consumer and many businesses greatly outweighs the significant hit to energy companies and/or energy-oriented capex, especially in energy-oriented states.

Got that? That doesn't mean there won't be layoffs in the oil patch. Of course there will be.  But the oil patch has seen booms and busts before, and it's a buying opportunity for investors with a longer-term view.

Now that we have that settled, let's look at what should affect oil prices in the short-term.

First, the Saudis keep cutting oil prices. They aren't blinking in this price war. They think they can win.

US Global Investors says the price of oil is getting near the Saudi break-even price.

Is US Global right? Ask the Saudis.

U.S. producers aren't blinking either. Meanwhile, here's what we know about breakeven prices in some U.S. shale plays and the oil sands (source)...

And new U.S. oil and gas well permits dropped 40% in November.

Just five days after the Organization of Petroleum Exporting Countries decided to maintain production levels, Iraq, the group’s second-biggest member, made a deal that may add about 300,000 barrels per day (bpd) to world supplies.

And new production is starting in the U.S. Gulf of Mexico. Read this next piece of an eye-opener:

On Tuesday, U.S. major Chevron Corp. and its consortium partners announced crude oil production started at the Jack/St. Malo project in the deep waters of the U.S. Gulf of Mexico, one of the region's largest. "The Jack/St. Malo project delivers valuable new production and supports our plan to reach 3.1 million barrels per day by 2017," George Kirkland, vice chairman and executive vice president for upstream operations at Chevron, said in a statement. If realized, that would be roughly three times the current rate of production from the Bakken shale oil field in North Dakota.

Remember, there is already a surplus of between 1 million bpd and 2 million bpd on the global oil market.

On Wednesday, when U.S. crude oil prices bounced, Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion said in press reports: “We’re in a bear market so every move higher will be limited. Every rally is an opportunity to get out of long positions and load up on shorts.”

In Oklahoma City, gasoline prices dipped below $2 a gallon.

That's promotional, sure, but the big trend at the gas pump is lower.

Still, that doesn't mean the Doomers don't have plenty to gloom about.

Have a great weekend.

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