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Lingering Warmth Sounding But Opportunity
Dear American Capitalist Reader,
It was 81 degrees in San Antonio yesterday, 76 degrees in Washington, D.C., and 71 degrees in Delaware… And winter starts in two days. Can you believe it? It’s beach weather at the tail end of the year.
So it should come as no surprise that heating demand has been unseasonably low. Good for us; bad for the energy sector. The freakishly warm weather is expected to linger in much of the United States through early January, according to Reuters. That’ll easily worsen the damage inflicted on heating demand, given the fact that a “white Christmas” is way out of the question. Heating demand, particularly in the U.S. Northeast (the biggest consumers of heating oil), is expected to fall some 30% below normal for the week ending Christmas Eve.
In fact, according to Bloomberg.com, “Higher-than-usual temperatures in the northern U.S. may persist through Jan. 1, the National Weather Service forecast yesterday. A U.S. Energy Department report tomorrow will probably show the nation's above-average oil stockpiles fell for a fourth week as refiners increased production.”
And, despite OPEC’s decision to cut supplies, there are widely held doubts that OPEC will cut production at all. OPEC inaction would easily send oil to about $60. Crude rose $1.41 last week because of OPEC’s agreed-upon 500,000 barrel-a-day cut starting in February.
But all may not be lost for energy, if today’s inventory report has anything to say about it. For the sake of energy, the inventory report is expected to show a drop in crude stockpiles, which could reasonably spike oil back above $63 by the close of the week. That, and in the event that weather conditions return to normal, recent energy sector weakness could be used as a buying opportunity. The first cold front to nail the United States will quickly push oil prices back up… and fast.
Take care,
Ian L. Cooper, Editor, Early Alert Trader and Death Cross Trader
