US Stocks Resume Climb to New Record Highs, Oil Slumps on Supply Concerns

Crude oil futures retreated to begin the week amid the persistent supply glut concerns.  Highlighting the issues faced by OPEC in its effort to control the oil market, today Libya resumed normal production at its largest oil field, Sharara, after armed protestors threatened to halt activity over the weekend.  With Libyan output rebounding close to pre-conflict levels, oil drilling worldwide has matched a two-year high, largely offsetting the efforts made in January’s supply-cutting pact.  Meanwhile, representatives from OPEC and non-member nations began a two-day meeting in Abu Dhabi today to address the recent reports of participant nations not conforming with the agreed upon production levels.  The output compliance rate in July fell to its lowest level since the pact was established, recorded at 86%.  WTI crude oil finished down 0.5% on the day to $49.30/barrel after trading as much as 2% lower earlier in the session.     

 

 

Trading volumes were relatively low in the first session of the week, which was devoid of meaningful economic data releases and light on corporate earnings reports.  US stocks shrugged off the negative sentiment from the energy market and built upon the momentum from last Friday’s jobs report, with major indices up 0.1%-0.5% on the day as the DJIA and S&P 500 touched new record highs.  Treasurys held within a tight range throughout the session, and yields/swap rates finished down 1-2 bps across the curve, bringing the yield on the 10-year note to 2.25%.  The CPI report scheduled for this Friday will serve as the most important data release of the week, with expectations pointing towards a 0.2% monthly increase and 1.7% YoY gain.  Earlier today investors heard from Federal Reserve Bank of St. Louis President James Bullard, who stated his view that interest rate hikes should be put on hold until inflation data improves and approaches the 2% Fed target.  “Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target,” Bullard explained.