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May 22nd Morning Energy Report

Good morning. Talk about volatility! After getting racked on Tuesday and losing 137 points, the Dow gained all that back and more yesterday gaining 159 points. Talk about volatility! All with a net gain of 22 points over the two days. That price actions seems to be the theme of the year. The S&P 500 climbed 15 to 1,888 and the Nasdaq added 35 to 4,132. Yesterday was the Dow’s best percentage gain since mid-April. The S&P is up 3 or the last 4 sessions. The impetus for yesterday’s move was the release of the FOMC minutes from their last meeting showing central bankers discussed the eventual tightening of monetary policy but, and this is the important point, made no decisions on when that would occur. The term the Fed used was “prudent planning.” Bottom line: the minutes were in line with investors thinking.

96% of the S&P 500 companies have reported results with profit growth this quarter of 5.5% and revenue up 2.8% according to Thomson Reuters. While more companies have topped earnings expectations than usual, fewer have beat on the revenue side.

You men out there with a spouse/significant other must be taking good care of your better half. Tiffany & Co jumped a whopping 9.1% after the jewelry retailer raised its full-year profit forecast.

This morning is beginning a slightly weaker note with the Dow down 38 points which is the weakest it’s traded this morning with investors awaiting weekly jobless claims and data. Asian markets continued to be mixed with each of the major indexes taking turns being up or down. Of note, the Nikkei 225 was up a huge 2.11% today on a report today that Japan Post Insurance, the country’s largest insurer, was increasing its investment in Japanese stocks this year by $3.05 billion. European stocks are waffling around unchanged.

Natural gas traders are taking their cue from equity traders. On Tuesday natty climbed 8.2¢ and yesterday it fell 7.9¢ for a net over the two days of $0.003. Nada. I did some research and since very late February natural gas has traded in a 63¢ range, $4.22 to $4.85, and what’s the mean of that range? $4.535. Just about where we’re currently trading. Today the EIA releases its weekly closely watched natural gas storage report and the market is expecting an injection of 98 Bcf. Last year we saw an injection of 90 Bcf which is also the 5 year average.

The forecast is a little warmer in the 6-10 time frame but a little cooler in the 11-15 so that washes. So with powder dry and guns loaded we wait for 9:30 CDT for the report. Natty is down 1.5¢. Chatter.

WTI jumped $1.74 yesterday closing at a strong $104.07. Brent added 86¢ to $110.55. The DOE released its weekly crude and inventory data yesterday and it confirmed the huge reduction in inventories reported by the API on Tuesday. The DOE reported crude inventories fell 7.23 million barrels while the API reported a decline of 10 million barrels. Remember the 5 year average is a drawdown of only 283,000 barrels. In aggregate (including products), inventories were down sharply, 3.73 million barrels. Obviously this was bullish for Texas Tea. This morning WTI is up 5¢. Total chatter.

Yesterday China and Russia signed a huge, landmark deal for natural gas. The agreement calls for Russian government controlled Gazprom to supply state owned China National Petroleum Corp with 38 billion cubic meters annually. So how much is 38 billion cubic meters? That’s 25% of China’s current natural gas consumption! The deal is worth $400 billion with flows to being in early 2018. Putting that in perspective, the value of the deal is greater than the GDP of South Africa! Alexei Pushkov, a Kremlin ally who is head of the international affairs committee of the Russian parliament’s lower house said in Twitter: “The 30 year gas contract with China is of strategic significance. Obama should give up his policy of isolating Russia. It will not work.”

And finally, GM announced another recall. The total number of vehicles recalled by GM so far in 2014 is over 14 million. That’s more vehicles than they’ve sold this year! Have a good day.

Bob Shiring
Sr. Energy Advisor

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