Equities and the Economy:

• Choppy day on Wall Street.
• Stocks eke out small gain.

U.S. stocks ended a choppy session yesterday finishing virtually flat to Friday’s closes. Both the Dow and S&P 500 closed up a couple of points to 20,658 and 2,357, respectively, and the Nasdaq finished 3 points higher at 5,881. Complete chatter. Yesterday’s volume was the lowest of the year. There wasn’t even any fundamental economic reports of consequence released yesterday. There are a couple of reports of some significance due out today so let’s see if they move the market. However, what investors are really waiting for is for earnings season to get underway which will begin in earnest this Thursday with JPMorgan, Citigroup and Wells Fargo reporting. Earnings are estimated to have risen 10% in Q1. Let’s hope they do because S&P P/E ratios currently reflect that expectation.

Stocks are on the defensive this morning with the Dow down 54 points.

Oil

• Oil prices rise for 5th consecutive day.
• Geopolitical risk premium rising.

Oil prices continued to grind higher with WTI closing up 84¢ yesterday at $53.08 as the risk premium continues to grow as geopolitical tensions increase as well as Libya’s largest oil field, Sharara, getting shut in again. Brent closed up 74¢ at $55.98. Prices are currently 12.5% higher than their March low.

Following the airstrike in Syria President Trump diverted an aircraft carrier group headed to Australia to the Korean Peninsula in response to numerous recent missile tests by North Korea. Now as we know North Korea doesn’t produce any oil but it’s backer is China and if tensions between China and the U.S. increase it’s going to increase the price of oil.

Regarding Sharara, which produces 30% of Libya’s daily production, a few days ago it was producing 213,000 bpd. Now, zero.

I haven’t mentioned the “shape of the curve” lately but always follow it. And it’s moving bullishly. Whereas the WTI/Brent September 2017 vs 2018 average Nymex contract spread was 9¢ contango a week ago it is currently 49¢ backwardated. This is not bearish price movement amigos. When the current price is higher than the deferred price it means current demand is greater than supply and storage is of no value. Storage is only of value when current supply is greater than current demand. As the contango gets wider, i.e. current price is discounted to deferred price, it means supply is growing relative to demand and must be discounted more and more because each marginal unit of storage is more expensive.

This morning WTI is down 27¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Cash market a little weaker.
• Prices consolidating.

On a slightly weaker cash market natural gas futures prices closed marginally lower yesterday with the May contract off 2.3¢ at $3.238. After hitting a two month high last week at just below $3.350 prices have pulled back about a dime and consolidated around $3.25 the last few days. Traders are really keying in on the cash market right now with heating and cooling degree days waning with us being in the shoulder season but offset by natural gas exports and nuclear plant maintenance. Additionally, storage is more than 400 Bcf below last year at this time and will need to be refilled. As I said, the cash market is king right now and it’s weaker this morning and the May contract is trading down 7.3¢.

A new record occurred in ERCOT last month. For the entire month of March 2017 wind power supplied 25.4% of the total generation for the month. The previous high was 23.3% the month before, February. Wind generating capacity has increased materially over the past year. In March 2016 wind provided 15.5% of total electric generation. More wind capacity will be coming on throughout 2017. By the way, wind generated electricity peaks in the spring when the winds peak.

Elsewhere

Do you have a middle name? I do. But having a middle name is really a fairly recent phenomena in the U.S. No one on the Mayflower had a middle name nor did most of our Founding Fathers. Only three of the first 17 presidents had a middle name. Perusing the birth records in Boston Massachusetts in the middle 1600’s no middle names appear. So what changed? Mostly the population. In the 19th century the population boomed in the U.S. and Europe and people felt they needed more names to stand out. Fashion and aspiration played a role too. The nobility had multiple given names so the arriviste middle class mimicked the style. Now middle names are commonplace, though sometimes perplexing. Genealogists struggle to find the logic in Harper Seven, Moxie Crimefighter and Royal Reign.