June 21 New York

Pinestone Investments

The DJIA fell by 57.11 points to 21410.03 while the S&P 500 Index declined by 1.42 points to 2435.61.  Brent crude slid beneath $45 a barrel to join WTI in a bare market as stockpiles in America remain above seasonal averages and Libya resumed some production.  That sent energy shares in the S&P 500 Index to the lowest level in two months.  The S&P 500 Index fell 0.1 percent to 2435.61.  Exxon Mobil Corp and Cheveron Corp. contributed the most to the decline.  The Nasdaq Composite Index rose 0.74 percent or by 45.92 points to 6233.95.  Chipmakers led a rally in its biggest component, tech shares.  The Nasdaq 100 Index climbed 1 percent, continuing its rebound from a two-week selloff.  It is still 1.8 percent from its its June 8 high.  The yield on 10-year Treasury notes was virtually unchanged at 2.16 percent, after declining three basis points on Tuesday.  The yen was little changed at 111.38 per dollar.  Brent crude entered a bare market, plunging below $45 a barrel for the first time since November as scepticism that a supply glut will ease worsens.  The world benchmark settled $1.20 lower at $44.82, down 22 percent from its January peak.  WTI crude futures lost 70 cents to settle at $42.53 a barrel.  Futures tumbled more than 2 percent on Tuesday, touching the lowest since August.  According to the analysis of Mitsubishi UFJ Morgan Stanley, there are four factors that instabilize crude prices now.  They are U.S. shale oil producers that are ready to accelerate outputs amid OPEC’s nine – month extension of its production cuts, risk of increased discord between OPEC and non-OPEC nations and weaker compliance with output cut requirements in the event that crude prices don’t rise as expected, concern about a worsening supply-demand balance as production in Libya and Nigeria recovers, and net long positions on futures market remaining high from a long-term perspective.  The report says that until there is greater clarity on these factors, oil prices will remain weak, with WTI crude futures ranging from $42 a barrel to $47 a barrel.  It also predicts that the pressure will begin to build for a rebound in oil prices, given that short positions are at a high level, and there is a widening gap between back-month futures and front-month futures.  The next turning point is likely to be early July when OPEC will release its production volume estimate for June.  The release will shed more light on whether OPEC countries are adhering to their production quotas.

Kazuhide Matsuishi

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