Highlights of this Week’s Update:
- “Tax Day” is upon us this week and now is a great time to start your 2015 tax planning.
- Stocks rose last week, pushing all the major U.S. stock indices into positive territory for 2015.
- Interest rate rose slightly, but mortgage rates remain little changed.
- Oil prices rise while supply continues at very high levels.
- Several items affect oil prices with the dollar a major factor.
READ ON FOR FURTHER DETAILS…………………………………………………
Start Planning Now for Your 2015 Taxes:
As we once again approach April 15th and the first tax deadline for filing your 2014 income tax return, it’s a great time to start planning your overall 2015 tax strategies. Now that 2014 tax planning is behind after this week, there is no better time than the present to explore and plan for ways to minimize your current year’s tax burden. Our new MyWealth program can help you track and monitor your own finances as well as provide a valuable tool for us to assist you with the preparation of your personal financial plan. Call us today to get started if you have not yet set up this personal financial management/planning system.
Last week saw the major U.S. stock indices gain ground, with the Dow rising 1.66% bringing the average to a positive 1.32% year-to-date through last Friday. The Standard & Poor’s 500 index was up 1.7% and is now 2.1% higher than it was at the end of 2014. U.S. stocks have continued their back and forth movement so far in 2015, much as we had expected as we entered this year.
Interest rates moved up slightly, with the yield for the 10 year U.S. Treasury ending last week at 1.96%. (U.S. Treasury) Mortgage rates ranged from 3.625-3.875% for a 30 year fixed mortgage, and 2.875-3.25% for a 15 year fixed rate mortgage. (Bankrate.com, Bank SNB)
Surging Oil Supplies and an Unexpected Twist to Oil Prices
U.S. oil production has surged and it has played a role in the downturn in prices that began last year. Currently, analysts estimate the market is oversupplied by one to two million barrels of oil a day (Wall Street Journal). Many, however, expect U.S. production to eventually level off and possibly begin
to recede amid the sharp reduction in the number of oil rigs, per the weekly Baker Hughes rig count.
Nowhere is the oversupply of crude oil more evident than the steep rise in oil inventories at the nation’s storage facilities (Energy Information Administration [EIA]). We typically see a build during the late winter and early spring as refiners reduce production of heating oil but have yet to ramp up gasoline production in anticipation of the summer driving season (EIA). This year, however, the seasonal build has far outstripped expectations. According to EIA data, we’re at levels not seen since the Great Depression! Curiously, however, oil prices have not plunged to new lows. Just the opposite, crude has recently stabilized around $50/barrel.
Take look at Figure 1. Since the early 2000s, U.S. oil inventories, excluding those in the Strategic Petroleum Reserve, have gradually climbed higher. Interestingly, so has the price of West Texas Intermediate (WTI) crude oil, at least until last summer.
It clearly contradicts conventional wisdom that would suggest rising U.S. supplies would put downward pressure on prices. At least that would be the case if U.S. supplies were the only variable affecting prices.
One final note – while it’s difficult to see in the chart, the plunge in prices last year took place before the recent jump in oil inventories. Stockpiles rose from 382 million barrels as the start of the year to the 80-year high of 482 million barrels last week (EIA). Yet, oil is up from the low, ending last week above $50/barrel.
Factors influencing price
Many factors are part of the oil price equation. For starters, it’s a world market. U.S. and global demand and expectations of future demand play a role in determining the price of oil as well as global supply and expectations of future supply.
Since oil is priced in dollars when sold around the globe, the value of the dollar is a factor, i.e., a stronger dollar puts downward pressure on oil and vice versa. Speculators, institutional investors, and hedge funds can influence prices as they move in and out of positions.
With so many moving parts, forecasts vary widely when it comes to predicting the future price of this key commodity.
U.S. oil renaissance
Meanwhile, the EIA recently noted growth in U.S. oil production in 2014 was the largest in over 100 years. A repeat of 2014 seems highly unlikely this year.
Source: Energy Information Administration Last Date: 2014
We wish you all a great week ahead. As always, call us if we can ever be of further service, or if you have any questions or concerns.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.