Friday 1/10/2025
Crude Challenges October High
Last week we stated that crude oil needed to first take out the October 7, 2024 high of $76.55. Today it is attempting just that.
This morning February 2025 West Texas Intermediate is up 3.56% which is a $2.61 jump. The news concerning the jump, as usual, provides mixed causality at best. Demand in China is down but German and Japanese earnings are improving suggesting more demand. One might as well assert that the popularity of the Landman series on Paramount has renewed interest in the Permian Basin.
Well whatever let’s take the result. Here is the rig report from Baker Hughes.
Baker Hughes reported last Friday that active US oil rigs in the week ending January 3 fell -1 to 482 rigs, modestly above the 2-3/4 year low of 477 rigs posted November 29. The number of US oil rigs has fallen over the past two years from the 4-1/2 year high of 627 rigs posted in December 2022.
We are at a 2 ¾ year low for the drilling rig count. Producers will not drill more unless the price raises to reward their effort. That is now happening. Recall this column recommended Patterson PTEN a Texas based energy services company trading for less than book value. A recommendation for Transocean RIG trading at half book value then was also made. Shares in both firms immediately dropped, But both have rebounded from new lows the last two weeks. RIG hit $4.19 earlier today, and PTEN had a high of $8.59. The public has not embraced the idea of higher oil prices or these two would be doing better. Once the oil patch believes higher oil is here to stay, the phones will be ringing at energy service providers.
I thought the markets peaked in July but instead all the major indexes made a second high in December, 2024. The markets are now in quick retreat and the trend is down for Industrials (-675), SPX (-95), and NDX (-395). As with energy, the public has not embraced the idea that we have seen a very long term peak in the stock market. The indicators are clear, one example being that Nvidia is worth as much as Apple. For that matter that Apple, basically now a phone company, is worth three trillion dollars. What to do? Stock dividend yields are a mere 1.4%. Treasury bills yield 4.5%. As rates increase, trust me they will, for many years, the rates on three-month bills will do the same. Buy yourself peace of mind with T Bills. Interest rates bottomed March, 2020 and have soared since. Higher rates are just getting started.
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