Mid-May already. April showers have not yet brought much in the way of May flowers yet. The Spring came pretty late here in Minnesota. The signs are evident that once the blooms begin they will be marvelous, just a bit tardy.
Crude oil supplies piled up this past week to the tune of 2.95 million barrels. At the same time the refineries pretty much flattened out in terms of production. That left gasoline, distillates and heating oil supplies to fall significantly. No real reason for the decline in production, except maybe that the industry has more information on actual demand and how weak usage may be. The soft oil prices, hovering in the low $70 range, have also begun to hit the producers. This past week we saw the largest drop in producing oil wells since March of 2020. We are now down to 731 total rigs operating. In the post pandemic era we appear to have peaked out at around 790 rigs in November of 2022.
One of the areas that is indicating future energy use softness is in the travel arena. It appears that the summer travel season is looking a bit weak. Airlines are reporting so-so seat sales right now. There is an even larger concern after the Labor Day period which is raising a number of concerns across the airlines. While the planes are full, it is not because demand is so strong, rather it is airlines cutting schedules to just cover the demand. A case where supply is adjusting, not demand. The airlines have yet to pull all the planes that were mothballed during the pandemic back into useful service. In fact, the USA is at 92% of 2019 plane passengers as we entered 2023. For 2023 the number seems to have stalled out, even showing some declines. It could be the prices, could be the anticipation of tougher times ahead, could be more business travel is being done by zoom or other virtual methods instead of in person. Something to watch.
The Michigan Consumer Confidence sentiment fell from 63.5 in April to 57.7 in May. Consumer expectations also fell, dropping from 60.5 to 53.4. The levels are the lowest since last July. Based on the report the concerns relate to the negative banking news, economic news that has been less than favorable as well as the debt crisis standoff in Washington. Inflation concerns appear to be taking a back seat to these other concerns.
Bank of America released information this past week about the level of credit card use. While the level of credit card balances are at all time highs, spiking recently as savings has dwindled for consumers, Bank of America indicated that credit card use in their portfolio dipped in the recent weeks. They saw this as more of a consumer pulling back on spending, rather than an indication that outstanding balances will drop. There was no sign that the level of debt is going to abate. The consumer appears to be strapped as well as concerned about the future and for now anyway, they are significantly cutting spending. This is likely to show up in the early June economic reports.
30 year mortgage interest rates appear to have peaked on March 5. Since then they have dropped from 6.79% to the current 6.48%. There was a point in early April where they hit 6.3%, a half point beneath the peak. This prompted a jump in mortgage refinance activity. This increase in applications is a bit odd since the rates are much higher than a year ago, even at 6.3%. Granted, the bump in activity is miniscule to levels seen from 2020 through 2022, we are currently at a level of 507, compared to well over 2000 in 2021, but the increase is notable. It is hard to pinpoint an exact reason for the activity change except for the idea of cash out refinances. Cash out refinances are rare right now for a number of reasons, including that values have peaked and we are seeing some deflation in housing prices right now. Another item that needs to be watched. The extra liquidity is not being used to purchase durable goods and it makes no sense to refinance to take cash out on a mortgage that you are already struggling to make.
Have a great week.
