Pull out the party hats! Dow closed above 15000 for the first time in history! The never ending rally has not disappointed, but is the party over? Although the Dow is rocking, and that has been a factor in the increase in oil from the lows, Dow records are just not what they used to be.
The problem is that the Dow is rallying not so much because business is that great but because it is being stimulated by the greatest economic stimulus in the history of the globe. While Dow 15000 is good news in any shape because it is better than Dow 12000, at the same time it also represents some smoke and mirrors and real money has been devalued by the Fed.
Mark Hulbert of MarketWatch using data provided by Mark Shiller points out that in inflation adjusted terms The S&P hit its all-time high in early 2000, at the top of the internet bubble. If we were to denominate that index's level in today's dollars, the S&P before the bubble burst would have been above 2,000 —24% higher than where it stands today. He says to be to be sure, dividends soften this blow — but only partially. Even with dividends re-invested, the inflation-adjusted S&P 500 index today is below its early-2000 peak.
Take oil for example. U.S. oil supplies are at an 82 year high and OPEC is raising production into a currently well to oversupplied market! OPEC boosted oil production to 30.21 million barrels a day in April, its highest output since November, the U.S. government said. What is wrong with this picture?
Oil too has been supported by global central bank easing and stimulus, which tries its best to keep the global economy from sinking back into a deflationary depression. With many counties insolvent the only way to keep the market from falling apart is to keep interest rates negative, flood the global banks with liquidity and pray that they have the guts to lend someone some money. And in spite of this stock market optimism the Energy Information Administration is lowering their outlook for global oil demand. This comes the day before China surprised with export data that seems to be a bit beyond belief. The Financial Times reported that China exports increased 14.7% in April from a year earlier, speeding up from a 10% pace in March and topping most forecasts. Imports rose 16.8% in April from a year earlier, up from a 14.1% rise in March and also surpassing expectations. That left China with an $18.2bn surplus on the month, rebounding from a slight deficit in March.
Of course there are doubts as data from surrounding nations don't quite measure up to China's lofty numbers. Nor does the Energy Information Administration Outlook lowering its crude price projection 2013 because of falling futures and increasing production outside of OPEC, like the good old U.S.A.
Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on Feb. 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month's STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014. Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the projected levels. They say that after increasing to $119 per barrel in early February 2013, the Brent crude oil spot price fell to a low of $97 per barrel in mid-April 2013 and then recovered to $105 per barrel on May 3. EIA expects that the Brent crude oil spot price will average $104 per barrel over the second half of 2013 and $101 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which increased to a monthly average of more than $20 per barrel in February 2013, fell to below $9 per barrel in April. EIA expects the discount to increase in the near term and average $13 per barrel in 2013 and $9 per barrel in 2014.
For natural gas, Adam Siminski says that "Heading into the summer, EIA expects U.S. natural gas production to be slightly higher than last year's output. However, because natural gas prices will be higher, projected gas use by power plants to generate electricity for meeting cooling demand will be lower this summer compared with last year's record-high levels. Injections of natural gas in underground storage this summer are expected to be nearly 50% higher than last year at 2.1 trillion cubic feet.”
Fleet Owner Magazine writes that the EIA began releasing its annual Energy Outlook study for 2013 this week. The study is being released in stages from April 15 to May 2, beginning with legislation and regulations and ending with a look at the impact of natural gas.
The EIA is quick to point out that "projections by the U.S. Energy Information Administration are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular case. The Reference case projection is a business-as-usual estimate, given known market, demographic and technological trends.” That said, there are some very interesting tidbits of information and possible future scenarios outlined. For starters, no matter what individual fleets may have experienced recently concerning fuel prices, the study reports that total U.S. energy expenditures will decline relative to GDP. The projected ratio of energy expenditures to GDP will average 6.8% from 2011 to 2040, which is below the historical average of 8.8% from 1970 to 2010.The Outlook also envisions a significant decline in U.S. energy use per capita. "The decline in energy use per capita is brought about largely by gains in appliance efficiency and an increase in vehicle efficiency standards by 2025,” the Outlook projects. When it comes to transportation, the Outlook notes that "LDVs [light-duty vehicles] that use diesel, other alternative fuels, hybrid-electric, or all-electric systems [will] play a significant role in meeting more stringent GHG [greenhouse gas] emissions and CAFE standards over the projection period. Sales of such vehicles [will] increase from 20% of all new LDV sales in 2011 to 49% in 2040.” In other words, nearly half of all light-duty vehicles could be running on so-called "alternative power” in just less than 30 years. Natural gas, the current alternative power darling of the marketplace, really is the fastest-growing fuel in the transportation sector, according to the Outlook, with an average annual projected growth rate of 11.9% from 2011 to 2040.
The Outlook also sees heavy-duty vehicles leading the natural gas adoption march with natural gas fuel consumption increasing "from almost zero in 2011 to more than 1 quadrillion Btu in 2040, at an average annual growth rate of 14.6%”-- not insignificant.
"Although vehicle uses currently account for only a small part of total U.S. natural gas consumption,” the Outlook finds, "the projected percentage growth in natural gas demand by vehicles is the largest percentage growth in the projection.”
Dow Jones wrote that Natural gas futures settled at their lowest level in a month Tuesday as traders focus on waning demand for gas-fueled heating and brace for another big increase in gas stockpiles later this week. Natural gas for June delivery settled down 9.1 cents, or 2.3%, to $3.920 a million British thermal units on the New York Mercantile Exchange. That's the contract's lowest finish since April 3 and the first time settling below the $4 psychological threshold since April 4.
