S&P 500; US Indexes Fundamental Daily Forecast – Strong Energy Sector Could Boost S&P 500 Index

The three major U.S. stock indexes are called slightly higher on Tuesday. Volume is expected to be light and volatility may come in below average as the Federal Open Market Committee (FOMC) begins its two-day policy meeting. Investors could shift their focus to the energy sector today.

During the pre-market session, gains were limited with the Dow futures rising about 53 and the S&P 500 Index futures gaining 2 points.

Earlier in the session, the government reported the producer price index (PPI) rose 0.4 percent in November. Economists had predicted an increase of 0.3 percent.

During the European session, stocks were mixed as investors shifted their focus on upcoming monetary policy meetings from the Fed and the European Central Bank.

Asian stocks drifted slightly lower on low volume.

The energy sector could be active on Tuesday as traders react to the news of the shutdown of a major pipeline. Brent crude oil is trading at a 2 ½ year high, dragging up U.S. West Texas Intermediate crude oil.

According to reports, the Forties pipeline system will close for several weeks while its operator, INEOS, repairs a crack in a pipe discovered last week. The pipeline is responsible for about 450,000 barrels a day of Forties crude from offshore fields in the North Sea to a processing plant in Scotland.

INEOS’ decision to close the Forties pipeline came as a surprise and helped drive Brent crude prices higher than initially expected. Many crude oil traders had expected INEOS to keep the pipeline running at reduced rates while it repaired the crack.

“Despite reducing the pressure the crack has extended, and as a consequence the Incident Management Team has now decided that a controlled shutdown of the pipeline is the safest way to proceed,” INEOS said in a statement on Monday.

According to CNBC, Forties crude is one of the several oil grades that sets the price of Brent. Today, the Forties Pipeline System transports about 40 percent of the U.K.’s North Sea output from more than 80 fields.

Prices could continue to firm over the near-term with Brent widening its spread over WTI. There is a lot of oil affected by this shutdown so supply is going to be reduced. Brent crude oil could rise to $67.00 to $70.00 over the short-run. This may be a big enough move to pull WTI crude to $60.00 a barrel.

The price surge could continue until INEOS determines the length of the shutdown. We could also overshoot the first targets because of excessive speculation by the hedge funds.

Rising crude oil prices should be supportive for energy stocks which could give the S&P 500 Index a boost due to its exposure to the energy sector.