Worldwide crude oil demand typically peaks around Labor Day, but not this year. Meanwhile, I will be closely monitoring US inventory levels, plus Saudi and Russian attempts to keep prices high – perhaps for political reasons, says Louis Navellier, Founder and Chairman of Navellier & Associates.
Saudi Arabia announced recently that it is extending its production cuts through the rest of 2023. Russia also confirmed that it would continue with its 300,000 barrel per day production cut through the end of 2023. There are also rumblings that Saudi Arabia may try to influence the 2024 Presidential election by keeping crude oil prices high, perhaps to embarrass the Biden family after candidate Biden insulted not only Mohammed bin Salman, but the entire Saudi royal family.
The media is also implying that Russia may want to hurt the Biden Administration in order to try to re-elect Donald Trump. Normally, I do not participate in election conspiracy theories. But there is no doubt that Saudi Arabia welcomed President Trump with an elaborate ceremony, and Russia probably likes the fact that candidate Trump wants to end the war in Ukraine.
If crude oil prices remain high throughout 2024, it’s clear that Saudi Arabia and Russia’s production cuts could be the primary reason.
Turning to the economic statistics, we got a big boost when the Institute for Supply Management (ISM) reported that its non-manufacturing (services) index rose to 54.5 in August from 52.7 in July. This was a big surprise, since economists were only expecting the ISM service index to come in at 52.5. Furthermore, the strong ISM reading is indicative of strong third-quarter GDP growth.
The new orders component rose for the eighth straight month to 57.5 in August, from 55 in July. The business activity, inventory sentiment, and prices index components all rose to an impressive 57.3, 61.5, and 58.9, respectively, while fully 13 of the 18 service industries that ISM surveyed reported growth.
Also, the Fed released its Beige Book survey in preparation for the Fed’s late-September Federal Open Market Committee (FOMC) meeting. The good news is that the Beige Book survey acknowledged that inflation pressures are abating, and that job growth is slowing.
Almost all of the Fed’s 12 districts indicated businesses “renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term.” The only inflation warning was a Beige Book comment that “several districts highlighted sharp increases in property insurance costs during the past few months.” Apparently, insurance companies fleeing California, Florida and other high-risk areas may be hindering some regional housing.
I do not expect a Fed interest rate hike at its late-September FOMC meeting.
