Good morning. Another lousy day for U.S. stocks. The Dow fell 46 points to 16,523, the S&P 500 dropped 5 to 1,934 and the Nasdaq lost 5 to 4,379 and are at their lowest levels since May. Now I’m sure many, if not most, of you have been monitoring the recent decline but let me put this in perspective. Using the bellwether index, the S&P hit a high at 1,992 on July 24th. Doing the math on yesterday’s close, we’re down less than 3%! The “excuse” for yesterday’s sell off was the HSBC/Markit Purchasing Manager’s Report for Services out of China showing that index in the world’s 2nd largest economy fell to 50.0 from 53.2 which is the lowest level since November 2005 when HSBC/Markit began collecting data. Offsetting that negative report was a quite positive report released here in the U.S. showing Factory Orders for June rose 1.1% much more than expectations which were 0.6%. This was very good news but unfortunately was tempered by the fact that May’s figures was revised for the worse from an already ill -0.5% to -0.6%. Also weighing on stocks were Target’s earnings report which cut its 2nd quarter earnings estimate and energy stocks which just got pummeled due to lower crude oil prices. In fact, energy stocks posted the largest losses on the S&P, down 1.1%.

Photo:  A Water Drop by Jose Manuel Suarez is licensed under CC BY 2.0

This morning Dow futures are bouncing back from being down 64 points to only 4 currently. Asian stocks all closed very materially lower and European stocks are trading lower. The markets are getting very concerned over a report out of NATO that Mr. Putin is increasing the size of his troops on the Ukrainian border increasing fears he will invade Ukraine. Per NATO spokeswoman Oana Lungescu, “We’re not going to guess what’s on Russia’s mind but we can see what Russia is doing on the ground – and this is of great concern. The latest Russian military build-up further escalates the situation and undermines efforts aimed at finding a diplomatic solution to the crisis. This is a dangerous situation.” Not comforting words my friends.

As mentioned above, oil prices got hit yesterday with WTI ending down 91¢ at $97.38 and Brent falling 80¢ to $104.61. Prices fell despite a quite bullish weekly API crude and inventory report. WTI prices haven’t been this low in 6 months. There may be conflict in Libya and Mr. Putin may be amassing his troops on the Ukrainian border but traders are looking at demand and supply data which is showing demand is at best static and North Sea and west Africa supplies are plentiful. I wonder what the Saudi’s are thinking? They have been the world’s swing producer. I wonder if they’re considering cutting production? You know, on second thought, this could be a brilliant coordinated strategic and tactical move by the West to punish Vladimir Putin. Russia is nothing but a gas station. Other than oil and natural gas it has nothing to export. It’s economy is struggling and in fact I’ve read it’s in contraction. So how do you hurt Mr. Putin? By pushing down oil prices. So is Mr. Putin responding “flipping off” the west saying, “Ok you push oil prices down; I’ll invade Ukraine.” A chess match played out on the world stage! My mind is spinning!

World tensions may have increased but we’re not seeing it in oil prices this morning. WTI is up only 42¢ while gold is screaming up 1.88%

Natural gas rose 6.3¢ yesterday closing at $3.897 driven by a stronger cash market. So why did it go up when the weather forecast is so mild/bearish? Because on a weather-normalized basis we’re burning more natural gas. Why? My clients know. Tomorrow is EIA natural gas storage day and traders anxiety is ramping up. The last two storage reports have been bullish. I know why they’ve been bullish. Let’s see if we get a 3rd. This morning natty is down 1.2¢. Chatter.

Natural gas production in the Marcellus Region continues to hit new records. As a reminder, the Marcellus production is primarily in West Virginal and Pennsylvania and is the largest shale gas basin in the U.S. In July production exceeded 15 billion cubic feet per day. The first time ever. The Marcellus accounts for almost 40% of all U.S. shale production. Check this statistic out. Production has increased from about 2 Bcf/d in 2010 to the current 15 Bcf/d level. That is a 7.5 fold increase in only 4 years! Folks that is nothing less than amazing! It would be even larger if New York would allow quite its socialist ways and allow hydrofracking. Have a good day.