Monday's Stock Market - June 25

[dan_s]

Days like today are a reminder that we always have "Market Risk" no matter how good the oil market fundamentals are.

Most hedge fund managers are paid based on quarterly results. Most of them get paid a 2% fee of their fund's gains for the quarter. Therefore, as the end of a quarter approaches, the funds will tighten up their stop loss orders and/or "harvest" gains. Lots of very tight stop loss orders can lead to a "cascade" selloff like we had today. FEAR of the U.S. / China trade war seems to be the "official reason" for today.

The silver lining today was the market rebounded some in the afternoon, closing well off the lows for the day.

Most of our Sweet 16 and other model portfolio companies closed lower today, despite strong fundamentals. Q2 results are going to be very good.

Brent closed lower in London, but WTI opened higher and moved up to $69.41 before drifting lower with the overall market. Some of those hedge funds mentioned above also have big positions in oil futures. WTI closed around $68.00/bbl, off the lows for the day.

There is strong support at $67.00/bbl.
> EIA's weekly report is expected to show another crude oil inventory drop of ~5 million barrels.
> Q3 is always a period of high demand for transportation fuels and high demand for distillates takes over in Q4. From Q1 to the end of Q3 last year, demand for oil increased 2.3 million barrels per day and we should see a similar spike in demand this year.
> U.S. refineries are near maximum utilization rate, which pretty much guarantees a steady decline in crude oil inventories
> OPEC + Russian oil supply increases will not come on quickly and will not have any impact on OECD inventories until at least September.
> Declines in Venezuela and Iran will likely offset most of the increase from Saudi Arabia, Kuwait, UAE and Russia.

As Raymond James pointed out in today's "Energy Stat" the global oil market is TIGHT and heading to VERY TIGHT by year-end. Hang Tough, they call them cycles for a reason.