Good morning. After four straight up sessions U.S. equities took a pause with the Dow shedding 38 points but managing to stay above 17,000 by just 1 point, the S&P 500 slipping 4 points to 1,988 while the Nasdaq eked out a gain of 6 points to close at 4,539. Folks, we fared much, much better than European equities with all the major indexes getting hit pretty hard as a Russian convoy with humanitarian aid moved into Ukraine toward pro-Russian rebels without the authority of the Ukrainian government. Ukraine announced the move as “a direct invasion” of its territory. Moscow warned against any attempt to “disrupt” the convoy but didn’t say what action it might take if Kiev’s military intervened. For the week the three major indexes all had their 3rd weekly gain in a row with the S&P and Nasdaq both up 1.7% and the Dow up 2%.

There were no major economic reports released Friday so all ears were tuned into Janet Yellen’s speech after the Fed’s meeting in Jackson Hole, WY ended. Ms. Yellen’s comments were pretty much in line with what the markets were expecting stating the economy is getting closer to the Fed’s goals of full employment and stable inflation and the debate at the central bank is “naturally shifting” to when interest rates should be raised. Balancing this hawkish tone Yellen also said the indicators followed by the Fed suggest the unemployment rate’s decline overstates the improvement in overall labor market conditions. The takeaway: Dr. Yellen who has to date been a monetary dove has now moved to a position advocating patience. The difference is subtle but very important.

This morning U.S. equities are grinding higher with the Dow up a healthy 98 points. Whoop! The Asian markets closed mixed with Japan’s Nikkei 225 and Hong Kong’s Hang Seng closing nicely higher offsetting a lower China Shanghai. Germany’s DAX and France’s CAC 40 are materially higher while London’s FTSE is flat. Pushing European and U.S. stocks up today were comments by European Central Bank President Mario Draghi strongly suggesting more QE was on the way stating the bank is prepared to use “all available tools” in its monetary tool belt to spur the European economy which he said has declined lately with reports that both long and short term inflation are declining (I remember when that was good news!). As we all know, equities just love QE for the money “created” by a central bank flows into short term assets (stocks, bonds, treasuries) before eventually flowing into plant and equipment.

Oil fell marginally on Friday with WTI ending down 31¢ to $93.65 and Brent falling 34¢ to $102.29. As I’ve noted previously, global supplies are adequate with global demand flat, at best, and outweighing geopolitical strife. WTI has been down for 4 consecutive weeks and Brent has ended down 3 of the last 4. The Kurds are now selling crude from the oil fields they control and they are selling it at any price they can get. They’ve got no investment in the field so their breakeven is the marginal cost of production which is somewhere in the neighborhood of $10/bbl. They need cash badly to fight the Islamic State and price will not be an issue.

WTI is down 52¢ this morning which doesn’t surprise me because the euro, on the comments of Dr. Draghi, is trading at a one year low vs. the U.S. dollar which always puts downward price pressure on commodities priced in the greenback.

On Friday natural gas gave up most of the 6.6¢ it gained on Thursday closing down 4.9¢ at $3.840. The story remains the same with the bulls and bears conductions trench warfare below $4.00. The bulls are armed with electric generators now burning more natty while the bears point to increased production. This morning the cash market is strong and natty prices are reflecting it trading up 8.5¢ as I write. Today will be the hottest day of the year in Houston and I know that Houston and Texas alone do not set the North American natural gas market but as you can see on the map below the heat extends well into the upper Midwest. The heat sticks around in the 6-15 time frame for the east albeit less of a deviation from the norm than this week. Still, CDD’s are up.

It’s been so quiet I bet you forgot it’s hurricane season. We’re 3 weeks away from the official peak of the season but it’s been, fortunately, completely uneventful to date. Tropical storm Cristobal is just east of the Caribbean with a projected path due north and then northeast completely missing the eastern U.S. Further to the east in the middle of the Atlantic there’s a tropical wave with a 30% chance of further development over the next 5 days. This is the time of year things can get very exciting so we need to keep an eye on the Atlantic.

As mentioned more than once in this report, North Dakota’s natural gas production has skyrocketed quintupling over the last 4 years. Midstream companies have been working 24/7 building pipelines and processing to keep up with E&P companies completing wells but have lagged. The result is that nearly a third of the natural gas produced in the region is being flared. E&P companies will flare the gas so as not to stop the production of the much more valuable commodity, oil. Everyday about 350 million cubic feet per day of natural gas worth more than $100 million is flared. There are at least 12 class action law suits filed against drillers by mineral rights holders seeking lost revenues (mineral rights owners don’t get compensated for gas not sold to the market). The situation has gotten to a point where North Dakota regulators are cracking down. Regulators passed new standards requiring more natural gas be captured with the goal that 90% of the gas be captured by 2020. Driller now capture about 72%. When the new standards go into effect in October 74% must be captured. As a matter of reference, 99% of all natural gas produced in Texas and Alaska is captured for sale to the market but keep in mind those regions, unlike the Bakken, are very mature and companies have had time to build pipelines.

Have a good day.