Equities and the Economy:

• Not much movement in a week.
• Housing market hot.

I’ve been in Washington D.C. for a week with my two teenage daughters and while still monitoring the markets, my last Morning Energy Blog was June 14th, which discussed the markets on June 13th, so let’s see how things have moved since then. On the 13th the Dow, S&P 500 and Nasdaq closed at 21,328, 2,440 and 6,220, respectively. Yesterday the Dow closed at 21,410, the S&P 500 ended at 2,436 and the Nasdaq finished at 6,234. So in a week the Dow has risen 82 points and the S&P has lost 4 points. Just a bunch of chatter. The Nasdaq added 14 points which is marginally outside my subjective chatter bandwidth. The drag on the Dow and S&P has been the energy sector which I’ll discuss below. All three indexes are hovering just below record highs and we need something to feed this bull.

Something that I’m finding very interesting is that although the Fed just raised interest rates and is telegraphing they’re going to raise it one more time in 2017 and then more in 2018 in response to expectations of inflation rising, investors aren’t buying it. How do I know? Because the yield on the 30 year Treasury bond, aka the “long bond,” fell to a 7 month low yesterday at 2.724%. Investors just don’t seem to be buying into a threat of inflation even though the unemployment rate is low and there’s a lot of talk of wage pressure. Another reason bonds get bid up, i.e., yields drop, is investors go to bonds for safety. Not sure how this is all going to play out.

Yesterday was a quiet day for economic news but I always discuss the housing market because for many it is “close to home” (pun most definitely intended). Yesterday the National Association of Realtors reported sales of existing homes rose 1.1% in May to an annualized rate of 5.62 million homes coming in pleasantly better than expectations. Existing home sales are up 2.7% y-o-y. The housing market continues to remain very tight. Listings fell 8.4% as sellers appear to be reluctant to sell into this market. Get this. The median number of days the average home sale was on the market reached a new low, 27 days. The median sales price y-o-y is up 5.8% to $252,800. Homeowners are happy. First time home buyers, many of which are millennials, are not.

This morning equity prices are flat. Looks like the stock market is in “the irons.”

Oil

• Oil prices have gotten hammered.
• Data not showing global inventories falling.

A week ago WTI and Brent closed at $46.46 and $48.72, respectively. Yesterday WTI closed down 98¢ at $42.53 and Brent settled $1.20 lower at $44.82. So WTI has lost $3.93, 8.5%, and Brent has fallen $3.90, 8.0%. Yesterday’s closing prices were 10 month lows. Very ugly for the oil and gas producer. Even with the OPEC and Russian cuts global inventories just are decreasing materially.

Even with a supportive DOE weekly crude and products report yesterday prices fell. The report showed crude inventories fell 2.5 million barrels, which was greater than forecasts, and gasoline stockpiles fell in line with forecasts at 580,000 barrels. However, distillates inventories, which is mostly diesel, rose 1.1 million barrels, way more than forecast. Interpreting these numbers, refiners are working overtime turning crude into gasoline and diesel. But here is a critical piece of data from the report. It stated U.S. production climbed 20,000 bpd to 9.35 million bpd. And last Friday Baker Hughes showed the oil rig count rose by another 6 rigs, the 22nd consecutive week the oil rig count has risen.

Also pressuring prices was a report yesterday from the Bank of Russia. This is a scary one. They stated that rising production from the U.S., Libya and Nigeria could result in oil prices hitting $25 by mid-2018! If I’m an OPEC producer in the production agreement I’ve really got to start thinking about cheating.

This morning WTI is getting a tiny bounce up 25¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Very mild forecast on Monday morning crushed market.
• Prices consolidate since then.

Last Tuesday the July Nymex contract closed at $2.966. Yesterday the contract settled at $2.893. While this doesn’t seem like much of a move, at the end of last week natty had rallied to over $3.00. And then the Monday morning forecast hit the wires. That forecast dramatically shifted temperatures in the Midwest and east much, much cooler and natty lost 15¢ on that day. Since Monday prices have stabilized around $2.90. Current storage levels are lower than this time last year and the July and August weather forecasts are definitely supportive showing above normal temperatures across the country. Therefore, I think it’s going to be tough to push prices much lower, at least before autumn, and we’ve got a lot of weather to get through between now and then.

Speaking of storage levels, the EIA releases its weekly storage report today. The market is looking for an injection of 57 Bcf. This is below the 5 year average of 82 Bcf.

This morning things are quiet with natty trading flat to yesterday’s close.

Elsewhere

I’ve been wondering when this would be come. Solar paint! And it is even better than what you think. Researchers at RMIT University in Melbourne, Australia have developed a solar paint that can absorb water vapor and split it to generate hydrogen. The paint contains a newly developed compound that acts like silica gel, the same stuff you see in those little packets in food, medicines and electronics to keep it dry. The new material, molybdenum-sulphide, also acts as a semi-conductor and catalyses the splitting of water molecules into hydrogen and oxygen. The product has some big advantages in that there’s no need for clean or filtered water to feed the system. Any place that has water vapor in the air can produce fuel. The system can be used in very dry but hot climates near oceans. The sea water is evaporated by the hot sunlight and the vapor can then be absorbed to produce fuel. Obviously this is just in the research phase but the implications are staggering!