Equities and the Economy:

• After two big days stocks pause.
• Trump Administration rolls out tax reform plan.

After two outstanding days U.S. equities took a breather yesterday ending little changed to Tuesday. The Dow fell 21 points to 20,975 and the S&P 500 closed down 1 point at 2,387. Intraday the Nasdaq hit a record high but couldn’t hold on closing flat to Tuesday, which was a record high on a closing basis. A bit of bivouacking is not to be unexpected after such a big move. Q1 2017 corporate earnings reports have surely pushed equities higher but the stock market also got a boost from optimism about the Trump initiative on tax reform, an outline of which was released yesterday by Treasury Secretary Steven Mnuchin. When I say outline, I mean outline. It was a one page document, with details promised later. The devil is always in the details!

There were no economic reports of consequence yesterday adding to the lackluster day.

Today is beginning quietly with the Dow up 12. Chatter. That being said, the Nasdaq is posting new record highs. Let’s see if it can hold on to the gains.

Oil

• Oil prices little changed.
• DOE data contravenes API data.

The big, or I should say interesting, news yesterday was the DOE’s weekly crude and products report which contravened Tuesday’s API report. The API had crude inventories rising 0.9 million barrels while the DOE had it falling a whopping 4.1 million barrels. Offsetting that though was the DOE had distillates, which is primarily diesel, stocks rising 2.7 million barrels while the API had a small withdrawal. So while the two reports were much different in their individual components, the aggregates weren’t much different, which is why oil prices didn’t change much. Interestingly, refinery utilization, which I monitor but rarely discuss, is up to 94.1%, well above the 5 year average of 87.8%. This tells me the “crack” spreads must be very attractive. “Crack” spreads are the price spreads between the price of crude oil and the refined products (for example gasoline) produced in the ‘cracking” process.

This morning oil is getting hammered with WTI down $1.07. Pushing prices lower are two factors. First, reports are that Libya’s big Sharara field is once again open, and two, Iran’s Deputy Petroleum Minister said his country deserves to be able to produce more oil.

Courtesy of MDA Information Systems LLC

Natural Gas

• May Nymex contract expires strong.
• Shorts got squeezed.

As I mentioned in previous reports, the May Nymex contract had been falling for days and being yesterday was the expiration day those shorts had to cover, and got squeezed. When all was said and done, the May contract “rolled off the board” up a hefty 9.9¢ at $3.142. The rise in the near term contracts pulled the calendar 2018 strip up 3.1¢, its highest close since December.

Today the EIA releases it regular weekly storage report with the market expecting a 74 Bcf injection. The June contact begins its tenure as the prompt month today is starting out 5.0¢ lower.

Elsewhere

Being that I’ve mentioned the Permian Basin many times over the course of writing the Morning Energy Blog and that about half of all the oil rigs in America are currently working in the basin, I thought I give you a little background on it. The Permian Basin cover 75,000 square miles in 43 counties in western Texas and southeastern New Mexico. It got its name because it has one of the world’s thickest deposits for rocks from the Permian geological period. The Permian composes several component basins: the Midland Basin, the largest, the Delaware Basin, the second largest, and the Marfa Basin, the smallest. Drilling began in the 1920’s but production started to soar with the advent of horizontal drilling and hydraulic fracturing. Interestingly, over half the oil rigs that have been added in the Permian are concentrated on just 5 counties: Reeves, Loving, Midland and Martin counties in Texas and Lea County New Mexico. The old, amazing basin has been producing oil for nearly 100 years and despite over 2 million bpd the experts estimate the remaining resources are even greater than what has been produced to date! The U.S. Geological Survey estimated that technically recoverable tight oil and shale reserves could exceed 20 billion barrels of oil, 16 trillion cubic feet of natural gas and 1.6 billion barrels of hydrocarbon gas liquids. Folks, those are HUGE numbers!