OPEC cut forecast for 2015, quarterly services survey strong and Costco (COST) outperforms in third-quarter

Bourbon & Bayonets / Wednesday, December 10th, 2014

Markets were heading lower on Wednesday after OPEC cut their demand forecast for next year. The Organization for the Petroleum Exporting Countries said that they predict demand will drop to 28.92 million barrels per day. This is nearly 280,000 lower than the previous projection and over 1 million barrels less than is currently being pumped out. This news comes on the coattails of their decision to maintain their current production levels instead of slowing. Crude oil prices dropped below $66 per barrel, which is nearly a five-year low. The report from OPEC said, “Should the current fall in crude prices continue over a longer period, it will impact the non-OPEC supply forecast for 2015, especially anticipated growth in tight crude.”

In a separate report, there was data pointing to stronger growth for the U.S. economy during the third-quarter than previously reported. The Commerce Department released their quarterly services survey and showed that spending on services grew much stronger than originally reported. With the new data, third-quarter consumer spending could be revised upward two-tenths of a percent to 2.2% annual rate. This could also lead to a revision of third-quarter GDP, which could be bumped up as high as 4.4% from the originally reported 3.9% for the quarter. Daniel Silver, an economist with JPMorgan, said, “This upward revision implies slightly stronger momentum for services consumption heading into the fourth quarter, but is of little significance to our forecast for the fourth-quarter GDP growth.”

Shares of Costco Wholesale Corporation (COST) were trading slightly higher after the company posted better-than-expected quarterly profits. The company announced that they had a 7% increase in same-store sales. This surpassed analyst expectations of a 5.8% rise. Net income came in at $496 million, or $1.12 per share. This was up from the $425 million, or 96 cents per share from this time last year. Net sales were up 7% to $26.28 billion. Analysts were predicting profits of $1.09 per share on revenue of $26.92 billion. Charles Grom, an analyst with Sterne Agee, said that the company’s performance, even if uneventful, shows why investors will “pay up” for Costco’s stock. “There is no reason to get off this train,” he said.

That’s all for today,

Warren Gates, Normandy Research

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