Memorial Day is on Monday. And it is time to acknowledge the courage and sacrifice of all the American men and women who have worn the uniform and shipped off to faraway lands to protect our freedom. Thank you for your service.
Every year, I get to acknowledge my stepfather for his service. Now a 94-year retired Chief in the Navy, he never saw combat. But he was aboard the aircraft carrier WASP on April 26, 1952. The WASP was out on nighttime maneuvers south of Newfoundland, when one of its escorts, the U.S.S. Hobson cut in front of the WASP.
The collision broke the Hobson in half and sank, taking 176 sailors to their graves. It was one of the worst non-combat Naval accidents in history.
He’s only talked to me about the collision and rescue attempt once. Like so many veterans, the memories are painful. So I don’t ask him to dredge them up. But he does get a sincere “thank you for your service” every year.
Summer Driving and Oil Prices
This weekend kicks off the summer driving season. This weekend also tends to mark at least a short-term low for oil and gasoline prices.
A record number of Americans are expected to take roadtrips this weekend. And miles traveled during the first three months of the year already hit a record. Yet gasoline prices are only about 1% higher than they were at the same time last year.
Air travel is also hitting record highs this weekend.
U.S. oil demand growth has been a tough call this year. We’ve seen periods where inventories rise more than expected, suggesting that demand is weak. And then there have been just as many times where inventories fell, suggesting that demand is strong.
Just last week, crude inventories rose 1.8 million barrels, when analysts were expecting inventories to fall by 2.5 million barrels. To further muddy the picture: gasoline inventories fell by nearly 1 million barrels.
U.S. oil and gasoline exports help explain the week-to-week fluctuation for inventories. The U.S. has become the world’s largest oil producer in the world, averaging 13.1 million barrels a day. The U.S. also uses the most oil, ~20 million barrels a day.
U.S. oil exports rose 595,000 barrels last week, to an average of 4.73 million barrels a day. The timing of exactly when oil leaves storage for export that keeps inventory levels difficult to predict.
Saudi Arabia and EVs
The next significant move for oil prices is likely to be higher. One reason is Saudi Arabia. The Saudis need oil prices close to $90 a barrel to fully fund its budget. Every day that oil is below that level, is one more day of deficit spending.
Saudi Arabia and OPEC have held production cuts in place to boost prices for nearly a year. The Saudis continue to extend the time period for its own cuts. It is reasonable to think that new production cuts from OPEC are likely if crude oil continues to trade in the mid-$70s.
It is also reasonable to think that slowing growth for Electric Vehicle sales may become a catalyst for higher oil prices.
The steady decline of growth for EV sales is pretty obvious for the U.S. But the growth trends appear to be slowing for both Europe and China.
Reuters is reporting that Tesla has cut its production in China by 17% and 33% over the last two months. Those are big cuts and analysts have responded to weakening Tesla sales by cutting earnings estimates by 17% for the current fiscal year and 21% for next fiscal year.
If you ask me, this is why Elon Musk has been engaged in a distraction campaign recently, focusing on promises about self-driving technology, robo-taxis and the Tesla Semi. There’s just no good news for Tesla’s current business of selling EVs.
Tesla has missed earnings expectations in each of the last three quarters. Tesla’s forward Price-to-earnings ratio is currently 60. There could be significant downside for the stock. Investors should just pretend Tesla stock is on vacation for the summer and avoid it.
Godspeed,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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