November 7, 2024 | US & China Energy Consumption Falls. We See WTI Declining Below US$68/b In The Coming Weeks

The Fed meeting ended today and the expected 25 BP cut was announced. I would keep an eye on the 10-year US Treasury now at 4.43%. It was down to 3.60% in mid-September. The high for 2024 has been 4.74% in April. If we exceed 4.74% then the Fed may be boxed in from further rate cuts. The market would be worried about borrowers being crowded out. Under this scenario inflation could rise again and jeopardize the ecstasy of stock market enthusiasts.

Some of the interesting economic and market data points over the last week are:

• US Durable Goods Orders rose 0.4% compared to a forecast of a decline of 0.1%
• US full time employment has declined year over year since February. The October US Jobs Report showed a meager 12,000 new jobs versus the forecast of 100,000. The decline was seen as due to the Boeing strike (now over) that shed 44,000 jobs. Wage inflation persists with hourly earnings rising 4.0% year over year,  that would keep the Fed from cutting more aggressively. Private sector jobs fell 28,000 jobs (Boeing strike). The unemployment rate stayed at a very low level of 4.1%.
• The Fed’s favorite inflation  measure, the PCE Price Index rose 2.7% in September.
• Unit Labour cost in Q3/24 rose 1.9% versus the forecast of a rise of 1.1%.
• Another restaurant chain filed for bankruptcy. TGI Fridays filed for Chapter 11 in Texas. It had not seen a sufficient recovery since the Covid lockdowns.
• Warren Buffett continues to raise cash and had US$325B at the end of September up from US$277B at the end of Q2/24. He sold down his Apple (about 25% of his holdings) and Bank of America positions. What does he see from all the corporate holdings he still has?

On the military front:

North Korea, in support of Russia, has deployed over 12,000 North Korean troops (including 500 officers and three generals) in the Ukrainian occupied areas of the Kursk region of western Russia. Russia has pushed back the Ukrainian offensive forces and may soon be able to recapture all the occupied lands. Korean troops have already been killed in recent skirmishes. This would be a problem for President Zelensky, who needed the Russian lands whenever diplomatic talks resumed and he could trade Russian land for occupied Ukraine land. With President Trump taking office on January 20th 2025 Ukraine could be forced to accept a difficult diplomatic resolution that lets Russia hold on to many parts of Ukraine that it has annexed already. Trump’s threat of cutting back military support would force Europe to meet Ukraine’s needs or a painful negotiated deal would be the likely resolution.

Moscow has gained increased support from North Korea as Russia has agreed to pay Pyongyang US$200M per year and provide it with 700,000 tons of food supplies. As part of the deal Russia is helping North Korea with advanced space technology. North Korea flaunted this advanced technology by launching a test missile which had a range that could strike the continental US.

A surprise announcement today by the Houthis was that they unilaterally declared a ceasefire and that no further missile or drone attacks against commercial and military vessels in the Red Sea would occur. This cessation was declared after Trump won the US Presidency. Let’s hope they keep to their word and stay afraid of facing the wrath of Trump. 

Regarding energy,

Our 2H/24 WTI price target of US$66-69/b was reached once and is likely to do so again in the coming weeks. It could occur during the tax loss selling season between mid-November into mid-December.

When we got the first decline it triggered a BUY signal and we sent out an SER Action BUY Alert on September 10th of five companies from our Coverage List. We also reiterated BUYS on three names already on the Recommended List which had fallen to bargain levels. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66-68/b) from today’s level of US$72.51/b. If this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued. Many of the ideas currently on our SER BUY List presented at the 2024 ‘Catch The Energy’ Conference.

Josef Schachter November 7th, 2024

Posted In: Schachter's Eye On Energy

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