All posts from Zacks
Zacks in Our Research. Your Success.,

Oil to Strengthen by 2nd Half 2016

Thursday, May 12, 2016
Stocks are indicated to start today’s session modestly in the green, with oil prices making gains, another weak retail sector earnings report and the weekly Jobless Claims numbers confirming the soft jobs reading from last week.
Pushing oil prices higher today is a new report from the International Energy Agency (IEA), the OECD energy watchdog, that projects the global oil inventory overhang fading notably in the second half of the year. Driving this favorable development is a combination of supply disruptions from Canada, Nigeria, Libya and other producing nations and normal production declines as a result of lower prices. The agency projects that global oil inventories will drop to about 200K barrels per day in the back half of the year from the first half’s 1.3 million barrels per day in the first half.
This diminishing inventory overhang has been a key part of our favorable view of the oil space this year. We did not foresee the unplanned supply disruptions out of Canada and elsewhere, but those are temporary in any case and will eventually be back online. But it’s the reduced volumes from the U.S.’s share basins purely on economic grounds that is proving to be the more enduring cure for the oil market’s supply problems. Production declines from the shale basins have proved to be a lot slower than many of us had envisioned, but it’s nevertheless happening and the trend is expected to only accelerate in the coming days despite the commodity’s recent favorable momentum.

Beyond oil, Kohl’s (KSS) became the latest retailer to come out with disappointing quarterly results; Macy’s (M) was a big disappointment on Wednesday. This confirms our sector's earnings outlook that the clouds over traditional retailers aren’t a result of how much but rather where consumers are spending their money. These retailers have not only to contend with the competitive challenge  from Amazon (AMZN), but they still have to defend market shares from traditional competitors. Many see material over-capacity in the brick-and-mortar retail space as well, which is making the competitive landscape all the more challenging for all legacy players.

Sheraz Mian

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
KOHLS CORP (KSS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report