Weekly Market Update with Brian Ransom 10 February 2023
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
We’ve had a small pullback in stocks this week as the rally pushed the market into overbought levels. Thus far, the market has remained above a key support line but looks like it will break through today, Friday February the 10th.
In the news this week, following the great Balloon incident of 2023, US officials look to tighten technology export controls to China. Borrowing costs rise for the Federal government as short-term debt must be rolled over at higher interest rates. And Russia has cut oil production, sending oil prices higher this morning.
With that in mind, lets take a look at the journey oil has been on for the last few years. In recent months, oil prices have found a normalized trading patter between $70 and $80 a barrel. This follows a peak in oil prices of around $120 a barrel last summer and oil prices have fallen ever since. Looking back even further, the big disruption was definitely COVID and the subsequent shutdowns that sent oil demand lower causing oil prices to fall into negative territory for the first time ever. After restoration of the normal economy, oil consumption started to rise again causing the slow build up to the inflationary year of 2022.
The oil markets are a delicate balance of traditional supply and demand. Because of the lockdowns in 2020, the steady state consumption curve collapsed causing a massive gap between production of oil and consumption. This gap produced excess inventories that eventually exhausted all buyers of crude oil and sent the prices negative. Eventually, consumption was restored, causing a second gap only this time consumption overshot production. This subsequently caused a rapid drawdown of inventories forcing crude oil prices higher.
Here's another way of looking at it. Beginning in early 2020, once the economy shutdown, crude oil inventories spiked to the highest levels ever seen. This caused oil prices to collapse. For the next year, oil production was dramatically reduced and consumption largely used up existing inventories causing those levels to fall to some of the lowest levels ever seen. This led to the oil price spike to $120 a barrel. From here on out, it looks like the production/consumption equilibrium is restored so hopefully, oil prices should normalize from here on out.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved February 10, 2023, from FactSet Database.
2.FactSet Research Systems. (n.d.). WTI intermediate spot prices (Interactive Charts). Retrieved February 10, 2023, from FactSet Database.
3.US Energy Information Administration. Short term Energy Outlook. Released February 7, 2023. Retrieved from https://www.eia.gov/outlooks/steo/data.php?type=figures
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