Equities and the Economy:

• New record highs continue to be set.
• Weekly jobless claims at 44 year low.

I’ve been travelling on business this week and the last Morning Energy Blog was last Friday discussing the previous Thursday’s price action. I’ll summarize the equities market since I’ve been gone this way. I should travel more! Yesterday the Dow closed up 10 points at 22,026 and while this is a meager gain. It was its 7th straight record close! The blue-chip index has notched 33 record closes in 2017! If it closes higher today, at 8 sessions, it will be the longest winning streak since the 12 session period which ended on February 27th.

Yesterday the S&P 500 closed down 5 at 2,472 weighed down by the energy sector which pulled back a little. The Nasdaq fell 22 points finishing at 6,340. For you data keepers, the Nasdaq topped out on July 26th at 6,423 and has retreated from there. No tears here though. On July 26th the index was up a whopping 20% for the year!

Turning to the economic news, yesterday the Labor Department released its weekly jobless claims report noting first time claims fell 5,000 to 240,000 holding at a 44 year low! The labor market is definitely “healthy.”

Today is the first Friday of the month and that means we’re getting the BIG economic data point of the month: the Labor Department’s Employment Situation report for July. The key data point in the report will not be the number of jobs created or unemployment rate. It will be wage growth. Although the unemployment rate is at decades low, wages have not been increasing as much as the Fed would like and is a major factor in them setting monetary policy.

If the morning is an omen, we’re going to see that 8th consecutive record close for the Dow for its up 48 points.

Oil

• WTI prices up marginally over a week.
• Strong U.S. gasoline demand.

Last Thursday WTI closed at a 2 month high of $49.04 and closed at virtually the exact same level yesterday down 56¢ on the day at $49.03. Prices have got a boost from 2 factors. First, the EIA reported on Wednesday of a big drop in gasoline inventories. The market was looking for a decline of 750,000 bbls and the actual number was way over that at 2.5 million bbls. The second factor is the weak U.S. dollar which is hovering at a 15 month low and down 9% for the year. You regular readers know a weak U.S. dollar is supportive of commodities priced in the greenback because those holding foreign currencies can buy more of the product for the same amount of money.

OPEC and its “friends,” i.e. Russia, have promised to restrict output by 1.8 million bpd until the end of March 2018 but records show OPEC output hit a 2017 high of 33 million bpd in July, up 90,000 bpd from June. A big “but” here. Demand for oil in the Middle East dramatically increases in the summer due to A/C demand. What needs to be focused on is exports, not production. When temperatures cool off and A/C demand declines in the autumn the “rubber will hit the road” and we’ll have to see how Saudi Arabia responds. Remember. Libya and Nigeria, who are not bound by the production agreement, continue to increase production.

Reuters yesterday reported that with slumping oil prices shale oil producers have cut more than $1.2 billion from their 2017 spending budgets. On the surface that’s very bullish. However, they swear they can continue to increase production despite the capital cuts due to increases in productivity in drilling and fracking.

This morning WTI is little changed down a meaningless 9¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Cool weather forecast pushing prices lower.
• EIA storage report marginally bearish.

Beginning with the morning forecast on Monday natural gas prices have been in retreat all week. Last Thursday the August natural gas Nymex contract expired for the month at $2.969/MMBtu. Since that time the front month contract, now September, has lost 16.9¢, 5.7%, with it closing down 1.1¢ yesterday at an even $2.800. Over the past couple of weeks natty prices have fallen nearly 35¢, 12%.

As is SO often the case, especially in the short term, prices are driven by the weather and Monday morning’s weather forecast shifted cooler for the Midwest and East bringing lots of bears out of their caves. And the forecast every day this week has continued the “below normal to normal” theme for the Midwest and east with no threat of above normal temperatures through August 18th. Not many more weeks after that and summer’s over!

Yesterday the EIA released its weekly storage report stating 20 Bcf was injected yesterday. Traders were looking for a 15 Bcf injection. Although the report was just marginally bearish combining it with the weather report gave the bulls nothing to graze on.

This morning natty is down 0.9¢ on a weather forecast showing no warmth in the east.

Elsewhere

“Eye Eye, Matey” Ever wonder where the Jolly Roger flag originated? As I’m sure you know, ships throughout history stocked different flags to communicate messages. Pirate ships were no exception, but their intentions were much more nefarious. They would fly certain flags to look like an ally only to change flags at the last moment. The most famous flags flown by pirates were called the “Jolly Roger” and were adorned with a variety of artwork, or often no artwork at all. Most of the these flags were simply black or red. If a pirate ship raised a black flag it indicated that so long as the ship they were attacking surrendered with no resistance they would be given quarter. Should the ship resist or attempt to flee the pirate ship would raise the red flag meaning no one would be shown mercy.

The origin of the skull and crossbones we all associate with the “Jolly Roger” flag is believed to be used by the Knights Templar which had the world’s biggest naval fleet in the 13 century and were well known for their pirate-like acts on the sea. The origin of the name is believed to be adapted from the English word “roger” which means “wandering vagabond.” In fact, another name for the devil among the English at the time was “Old Roger” and putting a depiction of the devil on these flags was quite common.