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Morning Energy Blog – August 4, 2016

Equities and the Economy:

The Dow ended its losing streak yesterday by climbing 41 points and closing at 18,355. Even though the losing streak was 7 consecutive sessions, the retreat equated to only 1.4% so the damage was minimal. A “flesh wound” by the Black Knight’s standards. The S&P 500 chalked up a gain of 7 points finishing at 2,164. Rising energy prices helped this index. The Nasdaq advanced 22 points, 0.4%, to 5,160.

Turning to the economic news, ADP, the largest private payroll processing company in the U.S., stated yesterday that private employers added 179,000 new jobs last month. This was quite impressive for Wall Street was looking for 165,000. As I’ve mentioned previously, investors watch this report closely for they use it as an indicator of what the Labor Department’s data will be tomorrow when it releases its report tomorrow. Over time the ADP and Labor Department reports have correlated well although individual months can have considerable divergence. The Institute of Supply Management released its service sector index for July noting a “drop” from June’s 56 to July’s 55.5. I call that a push. Most importantly, the index is well above 50 indicating expansion.

The news this morning, which although doesn’t impact us in the States much but is newsworthy, is that today the Bank of England did a bit of QE lowering its key interest rate by ¼% to ¼%, which was expected. So why is this newsworthy? First, It’s the first time it’s cut rates in seven years, and second and more stunning, this is the lowest level interest rates have ever been since the bank was created in the 17th century! So how are the markets receiving the data? Well, at least in London with the FFTSE 100 up a big 1.37%. Germany’s and France’s markets are more subdued up 0.46% and 0.29%, respectively. But what we care most about is what’s happening here in the U.S. and the BOE’s rate decrease is not helping here with the Dow down 17 points. Chatter.

Oil

As I’ve mentioned a couple of times, the oil futures boat has been heavily listing to the short side and yesterday was the day for some “rightening.” WTI rebounded $1.32, 3.3%, closing at $40.83 and Brent rose $1.30, 3.1%, settling at $43.10. The impetus for the short covering was the DOE’s weekly crude and products report. While crude stocks unexpectedly increased 1.4 million barrels with traders looking for a decline of 2.3 million barrels, gasoline inventories plummeted by 3.3 million barrels with traders expecting only an 850,000 barrel decrease. Looking at the shape of the price curve, for the first time in quite a while the contango has narrowed which means that supply is less aggressively bidding for storage. However, I’m going to need to see multiple days of a shrinking contango before even mentioning the word “bull.” This morning it’s pretty quiet with WTI down 20¢.

Blog Weather 8-4-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

On the heels of a stronger cash market the September Nymex contract price jumped 10.6¢ higher to settle at $2.839. With the consistent heat resulting in continuing records of natural gas consumption in the power sector the shorts threw in the towel and covered. Today the EIA releases its weekly storage report and the market is expecting an anemic 3 Bcf injection which is hugely less than last year’s injection of 41 Bcf and the 5 year average was a 54 Bcf injection. The weather forecast remains consistent showing above normal temperatures in the east and south for the 6-15 day times frame. It’s all calm this morning with natty flat to yesterday’s close.

Elsewhere

Online dating can be a great way to meet a potential partner. My brother, who is very happily married, met his wife via online dating. And then it cannot. One certain Dutchman found this out the hard way. Alexander Cirk met his girlfriend, only identified as Zhang, online and then decided to fly from Holland to China to meet her. His plan was to meet her at the Changsha Huanghua International Airport, per the BBC. The only problem, his girlfriend never showed up. Now as extremely disappointing and expensive as this is, one would think the next course of action for Mr. Cirk would take would be to fly back to Holland. But Mr. Cirk had another plan. He chose to wait at the airport for Zhang. For 10 days, getting exhaustion and having to be hospitalized! When Zhang finally was contacted she said she thought Cirk was joking when he told her he was flying to China. She added, “One day he sent me a photo of air tickets abruptly, and I thought it was a joke. He didn’t contact me later.” When Cirk landed and tried to contact the 26 year old, her phone was off because she was in another city having plastic surgery. While you might think this would be the end of the online lovers, Zhang said she is open to continuing the relationship. No word yet from Cirk.

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