Good morning. It was a “nothing day” yesterday on very light volume and with no major economic reports U.S. equities ended little changed from Friday. The S&P 500 closed 2 points higher at 2,091. The Nasdaq ended literally flat to Friday at 4,807 and the Dow lost 15 to 18,038. All chatter, although with the S&P’s gain it did eke out another record high, its 53rd record close this year. Staggering to me, the S&P had rallied a whopping 6% over just the previous 8 sessions.

The stock market respected a narrow trading range yesterday and I wouldn’t be surprised to see the same dynamic unfold today amid below average trading volume and futures are reflecting that with the Dow down 46 and the other two major indexes painting red as well. Not helping us this morning is the fact that all the major Asian markets closed lower with the Hang Seng and Nikkei losing well over 1% and the European indexes all trading over 1% lower. That’s a very heavy yoke for U.S. stocks to carry.

U.S. stocks may have been uneventful but oil wasn’t. It continues to get bludgeoned. Yesterday WTI lost yet another $1.56, 2.9%, closing at $53.17 and Brent fell $1.75, also 2.9%, settling at $57.70. Both are the lowest prices in more than 5 years. Oil started out the day getting a bid on word of production reductions in Libya resulting from rebel attacks on oil facilities but traders are viewing the loss of a couple hundred thousand barrels as immaterial in a market that is oversupplied by 2 million barrels right now. Oil futures have fallen 46% so far this year and is set for its biggest annual drop since 2008. The low oil prices are translating into low gasoline prices with the average price across the country of $2.287/gallon which is the lowest since May 2009. Also, helping the bears push WTI price’s lower is the continuing strength of the U.S. dollar especially vs. the euro.

Oil just keeps getting cheaper with this morning WTI trading 27¢ lower and trading at the lowest level since 2009. This isn’t all just hype folks. There are very fundamental reasons for oil’s fall. Another data point for you: U.S. crude inventories are the highest for this time of year in at least 3 decades and almost 13% above the 5 year average. Want more data? How about the EIA’s report that oil production grew to 9.14 million bpd through December 12th, the most in weekly data that started in January 1983. That ain’t going to rally a market.

Oil rigs are shutting down like crazy! Baker Hughes released its rig count report which showed operators idled the most rigs since 2012. For you data junkies, the rig count fell by 35 last week to 1,840 from 1,875. This is on top of 16 rigs being cut last week and 27 for the week ending December 12th which was the single biggest weekly decline in 2 years. The Texas economy is beginning to feel the effects of the lower oil prices. The Dallas Fed released its monthly business activity index yesterday. That index has been running between 8 and 10 for months. Expectations were for an 8. The number came in at an abysmal 4.1. As one Texas executive put it, the drop in crude oil prices was, “going to make things ugly…quickly.” Folks, I’ve been in the energy “patch” for 35 years and seen these cycles before. So have oil and gas producers. As is said in Texas, “This ain’t our first rodeo!” They know their economics of drilling. Producers’ response is extremely elastic, and fast. Decline curves for shale oil production are very steep. It won’t be long until production growth declines. You’ll see it in Q3 2015. Maybe before.

There was a short covering rally into natural gas’ close yesterday with the January contract jumping a big 18.2¢ settling at $3.189. This was obviously to the chagrin of those who had not previously locked their natural gas and electricity supplies for next month. But come on. $3.189! That’s still dirt cheap! Friday’s close for January was the lowest in over 2 years! Stop being greedy! A very mild December (El Nino conditions) pushed prices tremendously lower all month and the shorts had to get out yesterday and there was no one to sell to them. Let’s not forget, we still have two more calendar months of winter and one futures month left.

This morning the February contract is now the prompt month and it is trading 11.3¢ lower. The weather forecast has turned somewhat colder for the Midwest and east in the 6-10 time frame but the 11-15 period has moved warmer for the Midwest and east with the very cold air mass located over Canada and the upper Midwest migrating to the west a little resulting in warmer temperatures for the major gas consuming regions of the country.

Courtesy of MDA Information Systems LLC

You’re going to love this one! We’ve all been inundated with the news articles stating the earth is warming due to man’s activities, specifically, the burning of hydrocarbons. Well the President’s Special Assistant and Senior Advisor for Science and Technology, Dr. John Holden, said had it not been for anthropomorphic global warming the world would be falling into a phase of massive, deadly cooling instead. He said “While the climate of the Earth has changed over the millennia as a result of natural forces, principally changes in the tilt and orientation of the Earth’s axis and rotation and in the shape of its orbit around the sun, those changes occur far too gradually to have noticeable effects over a period of mere decades.” So what he’s saying is that if not for global warming the earth would be engulfed in a massive cold phase negatively affecting global food production. Go figure!

On a logistical note, this will be the last Morning Energy Report for this week. I wish you a safe and happy New Year!