Equities and the Economy

Good morning. For a while there I thought we just might get our first consecutive up days in two weeks for the Dow was trading in the green the entire day but then in the last 20 minutes selling came in out of nowhere and the index fell 57 points resulting in a “down” day. That being said, the damage was very minor with the Dow down 12 to 18,116 and the S&P 500 off 4 to 2,104. The Nasdaq unfortunately got whacked hard losing 15 points ending at 5,011 driven lower by the biotech sector with its ETF IBB falling 2.3% pulling the bellwether index lower. The biotech sector has been on fire the last 12 months and is waaaay overdue for a correction. One bit of disappointment is that the U.S. dollar fell yesterday vs. the all-important euro which should be positive for U.S. equities but it didn’t translate. Actually, that’s maybe why we were positive all day until the very end.

Regarding economic news, yesterday the Chicago Fed released its National Index which came in a very disappointing -0.11 after last month’s +.15 with expectations of +0.15. Given the broad scope of this number it clearly is not a good omen. Also, existing home sales were reported and it was a non-event coming in less than January but at expectations, 4.88 million units. Although the ill weather played a role in sales, it is the lack of inventory of homes on the market that weighed most heavily on the data.

This morning the chop continues with us earlier in the green but now down 39. The Asian markets closed mixed on either side of unchanged and the major indexes in Europe are positive, albeit marginally. The dollar’s value is sedate relative to yesterday as well. Basically, the day is starting out quietly.

Oil

You can’t keep a good man down, or in this case oil. Despite burgeoning crude inventories being at record highs here in the U.S. and it being illegal to export crude (but not products) no one wants to be short of Texas Tea below $40. WTI finished up 88¢ at $47.45. Brent added 60¢ to $55.92. WTI, as well as most commodities, got a boost yesterday from the weaker dollar for you all should know by now that all things being equal, a weaker U.S. dollar begets stronger commodity prices. There’s lots of bearish oil news: high production (Saudi Arabia now producing 10 million bpd. The highest since July), inventories continuing to grow, demand being flat. Yet oil prices aren’t falling. Also, the term structures have very slowly waxed bullishly over the past month. My antennae are up. This morning WTI is down a nickel.

Courtesy of MDA Information Systems LLC

Natural Gas

On a broader time frame natty has been chopping around between $2.65 and $2.95 since mid-January with prices within that range driven by the daily forecast. Yesterday morning it came in warmer and natty finished the day down 5.3¢ at $2.733 and this morning it’s coming in cooler and we’re up 3.1¢. I venture that many of you are looking for that “spring dip” in prices, but be careful. It’s nuke plant refueling time and the plants are dropping off line faster than a politician’s promise after election day. This load, which is baseload for nukes always run, will be replaced with natural gas fueled generation. Take if from an energy trader of 25 years, the markets, in this case natural gas, are not that predictable. That would be just too easy.

Elsewhere

I’m sure you’ve read or heard lately of oil storage capacity, or more specifically the lack thereof, at Cushing. Well here’s some facts. After increasing for 15 consecutive weeks crude oil storage at Cushing, OK, the WTI Nymex contract delivery point, reached 54.4 million barrels on March 13th. This volume is the highest ever. But it’s not the highest percent of storage capacity for over the past 4 years additional storage has been built at Cushing. Although inventory levels are at record highs, storage utilization is not. Capacity utilizations is now at 77% which is a far cry from the recent low of 27% last October, but materially below the high of 91% in March 2011. So doing some simple math, another 16.4 million barrels can be put into storage at Cushing to reach maximum working capacity. And remember there’s additional storage along the Gulf Coast and then there’s the “floating storage,” i.e., ships. Have a good day.