Good morning. Equities have been chopping around lately. On Friday they rose and yesterday they fell. The Dow ended down 26 at 17,111, the S&P 500 lost 6 to 2,002 and the Nasdaq ended off 9 at 4,492. Chatter. With the recent drop in oil prices energy equities have been getting whacked with the energy component of the S&P falling 1.6% yesterday compared to only a 0.3% decline in the main index. ExxonMobil, the world’s largest publically traded company, fell 1.5% and was the biggest loser among the Dow’s 30 members.

There were no major economic reports released yesterday and investors focused on geopolitical events with the one in the forefront yesterday being polls showing for the first time there are more “yes” votes for Scotland to secede from the UK than “no” votes. If the “yes’” prevail a lot of questions arise. What currency will they use? Will a diminished UK move to drop out of the EU? Will an independent Scotland move to join the EU? Will there be a central bank? Who will control North Sea oil? Will an independent Scotland owe or now owe its share of current UK debt securities and if it does take its share what will those debts be? And I’m sure there are a lot more questions. The vote is close and will be taken on 9/18. Western European financial markets will be skittish at least until then.

Overnight the Asian market closed mixed with the Nikkei 225 up and the Hang Seng and Shanghai down. The European markets are trading red but barely. Here in the three major index futures markets were waffling on either side of unchanged earlier but the Dow is down 68 as I write.

Oil slipped yesterday with both WTI and Brent closing lower. WTI fell 63¢ settling at $92.66 and Brent lost 62¢ closing barely above the psychologically important $100 level at $100.20. As mentioned in yesterday’s report, Chinese import data was weak and later in the day Japan reported the economy there contracted at an annualized rate of 7.1% which was more than forecasted. As I’ve mentioned numerous times, the U.S. dollar’s strength is also weighing on not just WTI but all commodities priced in U.S. dollars.

This morning oil is bouncing marginally this morning, 53¢, on the notion that Europe is delaying the recently approved sanctions against Russia waiting to see Moscow’s response. I often discuss the “shape of the curve” in commodities for that is where well informed money plays. That is where elephants play. When I say “shape of the curve” I mean the spread between the front months and the outer months, also known as the “deferreds.” So how important is the shape of the curve? Here’s how it translates into the real world fungible market. Brent is now at a large and rising contango. In China, Unipec, the marketing arm of China’s Sinopec, has booked the world’s largest oil tanker, the TI Europe, to store 3.2 million barrels of crude for future use. The TI Europe is one of only four ultra large crude carriers, ULCC’s, ever built. Two of the four carriers have already been taken out of service for the transport of oil and used instead for floating storage. The TI Europe is now the third. So long as the shape of the curve is at an wide enough contango and those in the oil, and perhaps the banking, industry can sell “premium” deferred futures contracts to cover their cost of borrowing and insurance they shall look for the storage arbitrage. I did this all the time in the natural gas market.

Natural gas closed up 8¢ at $3.876 snapping a 4 day losing streak. This morning it is up another a material 11.1¢ as I write. Natty is getting some support from some demand in the cash market due to 1) some pipeline maintenance shutting in some production and 2) the refueling of nuclear power plants which always takes place in the fall (and spring). Although demand is decreasing as we get deeper into September, nuclear plants are “baseloaded” and natural gas powered electric generation will be replacing the nuclear fueled generation.

One of the world’s legendary investors is upping his bet on the shale oil and gas industry. In Argentina. George Soros doubled his stake in YPF SA, the state owned oil company in Argentina. Argentina sits atop some the world’s largest shale oil and gas resources, and is about to get even larger following a new discovery over the last couple of weeks. Argentina holds an estimated 27 billion barrels of technically recoverable shale oil and 802 trillion cubic feet of technically recoverable shale gas much of it located in the Vaca Muerta, a ginormous shale formation in the Neuquen basin which is the 2nd largest shale gas deposit and the 4th largest shale oil deposit in the world! Soros’ investment in YPF now totals 3.5% and is worth $450.5 million. Now Mr. Soros is a very bright guy and I’m sure he hasn’t forgotten that Argentina has defaulted on its debt twice in the last 13 years. I hope he’s got good contacts down there! Have a good day.