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May 21st Morning Energy Report

Good morning. Disappointing earnings from retailers Staples, Dicks’ Sporting Goods, Urban Outfitters and others couples with comments from Philadelphia Fed Reserve President Irving Plosser sent U.S. equities in a tail spin yesterday with the Dow falling a material 137 points, 0.8%, to 16,374, the S&P 500 losing 12, 0.65%, to 1,873 and the Nasdaq finishing down 29 points, 0.70%, to 4,097. Keeping score, the S&P is up 1.3% for the year and the Dow and Nasdaq remain down for 2014. I’ve been discussing lately the divergence of the Dow and the broader market and that divergence grew yesterday with the Russell 2000 index sinking 17 points, 1.5%, to 1,098. Maybe things are different this year but history has shown this cannot prevail with the Dow being pulled down by the Russell.

In prepared remarks on the speaking circuit, Mr. Plosser said the Fed may have to raise interest rates sooner than some would expect. This comment sent the market reeling. I found the market’s reaction surprising for Mr. Plosser is well known to be a concerted and consistent “hawk” erring on tighter monetary policy. In fact, only Dallas Fed President Richard Fisher is more hawkish. And remember that Fed Chair Janet Yellen errors doveishly.

A week after the S&P touched an all-time high the market has alternated between small gains and losses. This week has and will be “light” on economic reports and combine that with the upcoming Memorial Day holiday means volume has been light, and will get lighter as the week goes on. Remember though, light volume does not mean low volatility. Hang on to your hats today folks for today four different Fed spokespeople will be speaking across the country. And we have the FOMC minutes from the Fed’s last meeting released this afternoon.

This morning Dow futures are bouncing being up 45 points. Investors and traders are not getting any direction from the global markets for both the Asian markets and European markets closed and are trading mixed, respectively.

Natural gas continued to creep up yesterday closing at $4.552, up 8.2¢ with yesterday’s weather forecast coming in warmer and cash in the Gulf “hanging in there.” Remember, it’s not prices at hubs in the northeast or Chicago or California that drive Nymex. It’s cash prices in the Gulf. This morning the weather forecast is a little warmer in the 6-10 day time frame but cooler in the 11-15 period so these offset each other, and the market is reacting so being down 2.5¢ as I write.

Yesterday WTI closed down 17¢ at $102.44 and Brent added 32¢ settling at $109.69. And then the API released its crude and inventory data. Setting the stage, the five year average is for crude inventories to fall an average of 283,000 for the week. Including products (gasoline and distillates) the five year average is a decline of 1.8 million barrels. The API’s number was a 10.1 million draw down. Yes you read that correctly. The aggregate number was an 8.8 million decline. The market had no choice but to react bullishly and prices immediately shot up but have since “settled” to only 93¢ higher. Today the DOE releases its data which will get more than its normal attention.

Concerning Brent, the situation in Libya is getting worse by the day and to the level where the U.S. Defense Department said yesterday that it is “pre-positioning” jets and personnel to prepare for the evacuation of U.S. personnel there. Extraordinary caution is the order of the day for U.S. officials. Benghazi is still fresh.

Have a good day.
Bob Shiring
Sr. Energy Advisor

 

 

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