Rising Oil, Spending Bolster U.S. Stocks

After a sharp decline at the beginning of the week, stocks surged strongly as rising oil prices and higher consumer spending indicate improvements for parts of the U.S. economy.  Inventories of U.S. crude fell, according to the U.S. Energy Information Administration.

A new study shows that crude inventories fell by 5.9 million barrels in the week ending December 18th, which constituted a far greater move than analysts had expected, as many predicted total inventories to see a small rise from the prior week.

Oil Prices Spike

After a sharp decline at the beginning of the week, stocks surged strongly as rising oil prices and higher consumer spending indicate improvements for parts of the U.S. economy.  Inventories of U.S. crude fell, according to the U.S. Energy Information Administration.

A new study shows that crude inventories fell by 5.9 million barrels in the week ending December 18th, which constituted a far greater move than analysts had expected, as many predicted total inventories to see a small rise from the prior week.

Oil Prices Spike

Oil futures remain significantly depressed relative to levels seen before the commodity crashed in 2014, and remains near its lowest point for this year, as well. WTI crude futures expiring in February settled at $37.50 a barrel on Wednesday after the news broke, while Brent futures rose slightly as well.

WTI prices also eclipsed Brent prices for the first time since 2010, a rare move that many analysts believe relates to the lifting of a 40-year ban on exporting oil from the U.S., which is likely to limit inventories in the U.S. while also encouraging greater competition globally. Some analysts argue the WTI premium over Brent will not last, given that high inventories and outputs from Africa, Latin America, and the Middle East will limit demand for American produced energy.

Personal Spending Accelerates

Alongside a short-term rise in oil prices, a longer-term surge in personal spending is signaling more strength in the consumption-driven U.S. economy.

According to a new study by the Bureau of Economic Analysis, personal consumption expenditures (PCE) rose by 0.3 percent in November after flat lining in October. That is the strongest reading since August, when PCE also rose by 0.3 percent—more than many analysts’ expectations.

Personal income and disposable personal income (DPI) also rose by 0.3 percent in the same period, indicating a greater willingness among American consumers to spend extra income earned through higher wages and salaries. In late 2014 and early 2015, PCE persistently fell behind DPI growth, indicating Americans were hesitating to spend money when they could. If that trend continues to reverse, it could mean greater revenues for companies catering to American consumers.

Stock Market Gains

That expectation drove the stock market to see a surge on Wednesday, with the S&P 500 gaining 1.24 percent after seeing a smaller gain on Tuesday. The surge brought the S&P 500 back into positive territory for 2015 year-to-date, after falling as much as 5 percent earlier this month.

Similarly, the Dow Jones Industrial Average saw a 1 percent gain, with energy companies broadly leading the market. Consumer discretionary stocks also saw a 0.5 percent gain on Wednesday.

In early morning trading on Thursday, S&P 500 and Dow Jones futures pointed to a flat opening, while markets in Europe and Asia were mixed.