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Morning Energy Blog – August 10, 2016

Equities and the Economy:

U.S. stocks finished slightly higher yesterday with the Nasdaq posting a new record closing up 12 points at 5,225. The S&P 500 traded at a new record high intraday but eased back closing up a single point on the day at 2,182. The Dow added 4 points finishing at 18,533. The S&P is now up nearly 7% for the year. Investors are feeling very confident. The odds of a U.S recession are low. The odds of a global recession are low. Central banks are cooperating. You can see investors’ confidence in the market via the VIX, aka Fear Index. It’s trading at two year lows. Global investors looking for a return and yield really have no other option than to put their money in the U.S. market. It’s performing the best in the world. Volume of late has been low with European investors on holiday and attention turned to the Olympics.

Regarding the economic data of the day, the Labor Department reported productivity fell 0.5% in Q2 which was far worse than economists were expecting. Compounding that was that unit labor cost rose 2.0% for the quarter and this too was well above expectations and hourly wages rose 1.5%. Productivity has to rise; it has to be consistent; it cannot fall or the economic landscape becomes problematic. Let’s hope this a one-off data point.

The Commerce Department reported yesterday that wholesale inventories rose 0.3% in June and sales at the wholesale level rose 1.9% vs. May. Rising wholesale inventories do not bode well for future demand at the wholesale level for wholesalers stop buying because they have ample stock on hand. Again, let’s see if this is a one-off. On the positive side, the NFIB Small Business Economic Trends reported its Index of Small Business Optimism rose marginally in July with small business owners biggest complaint is they can’t find qualified workers to fill open positions.

Asian markets closed mixed and after a great day yesterday the European markets are retreating a bit trading marginally lower. Here in the U.S. the Dow is up 8 points.

Oil

After jumping 3% on Monday it was a quiet day yesterday for oil with prices bouncing around unchanged all day. When the final bell rang WTI closed down 25¢ at $42.77 and Brent slipped 41¢ settling at $44.98. Last evening the API released its weekly crude and products inventory numbers reporting that crude stockpiles increased 2.0 million barrels which was counter to expectations of a decline of 1.4 million barrels. Offsetting that, gasoline inventories fell 4.0 million barrels which was much greater than the expected 1.3 million barrel drop. Distillates inventories, which is primarily diesel, came in at expectations. So the bearish crude data was offset by the bullish gasoline data and the market is reacting accordingly WTI is up 24¢. Chatter.

Blog Weather 8-10-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

It was a massacre yesterday. Natural gas prices plunged nearly 14¢ before ever so marginally rebounding closing down 13.3¢ at $2.615. And this was without the typical impetus of a surprising natural gas storage report. Natural gas prices have been trading lower ever since last Thursday when the EIA reported a very bullish storage report which failed to bring in buyers. The bears saw this lack of momentum and with the September contract trading, a shoulder month, they piled on. Additionally, and this is something I watch very closely, dry U.S. production has marginally increased recently. The next big event will be tomorrow’s storage report.

Weather forecasts continue to show elevated temperatures for the Midwest and east which will keep demand elevated by the power sector but the market doesn’t care with natty unchanged from yesterday. We’re at a key price level. This is the area where we first consolidated after the run up from $1.50. We’ve held this area a couple of times after the recent failure at $3.00.

Elsewhere

Returning to the Olympics, here’s some facts for you.

The U.S. leads the metal count with 27, China follows with 17, Japan 14 and Russia 13.

Michael Phelps won his 20th and 21st gold medals last night. Absolutely, unequivocally and incredibly ridiculous! And he’s got 3 events left!

The woman’s gymnastic team took gold crushing the field. They won by 8.209 points which is the largest margin of victory ever. In the last 4 Olympic games the margin of victory did not exceed 1.5 pints. Putting this in perspective, it’s like a NFL team going undefeated in a season, and winning every game by four touchdowns!

The first gold of the Olympic games was awarded last Saturday to 19 year old Ginny Thrasher who won the women’s 10 meter air rifle event setting a final round record score of 208.

Three cheers to Oksana Chusovitina! In a sport where the average age is in the teens, the female gymnast from Uzbekistan is made history last Sunday qualifying for the vault event, at the age of 41!

The U.S. men’s swim team kept it 20 year record alive by winning gold in the 100 meter backstroke for the 6th consecutive Olympics.

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