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Morning Energy Blog – August 5, 2016

Equities and the Economy:

Yesterday U.S. stocks ended pretty much flat to Wednesday’s close with investors awaiting today’s Labor Department U.S. Employment Situation Report. The Dow ended down 2 points at 18,352, the S&P 500 closed flat to Wednesday at 2,164 and the Nasdaq added 7 to 5,166. Yawn. Turning to the economic news, the Labor Department released its regular weekly jobless claims report which came in at 269,000 and right on expectations. Factory Orders came in at -1.5% with The Street expecting -1.8% which was also close enough not to move the market. Internationally the big event was, and as expected, the Bank of England lowered interest rates to +1/4% which is the lowest level since the bank was created in the 17th century. Here’s one for ya. The BoE now joins the ECB and the BofJ in purchasing both public and private sector assets! That means that not only are the central banks buying sovereign debt, their buying debt (bonds) issued by corporations. Can you say “global financial engineering?!”

The Labor Department just released its employment report for July, and it’s a good one! Setting the stage, economists were forecasting for 185,000 jobs to be added. The actual number, 225,000! The unemployment held steady at 4.9% as more than 400,000 people “joined” the labor force in search of work. Hourly pay, a key data point for the Fed, rose 0.3% to $25.69 keeping the 12 month increase in wages at a post-recession high of 2.6%. The average workweek rose 0.1 hour to 34.5 hours and very close to an 8 year high. Every major industry hired save the energy sector. Additional positive news came in positive revisions to May and June’s employment data which were revised up 13,000 and 5,000, respectively. Folks, this was a very good report. And the market likes it with Dow futures popping on the news up 107 points. Ok, get ready. Now the talk will focus on whether this data will motivate the Fed to raise interest rates. My bet, no. This is a dovish Fed. They are going to wait (maybe too long!) to raise rates.

Oil

Oil prices rallied for the second day as shorts continued to cover. WTI closed $1.10, 2.7%, higher at $41.93 and Brent added $1.19, 2.8%, settling at $44.29. Prior to the last 2 days crude oil prices had fallen 16% since the beginning of June and were due for a bounce. Concerns remain about a supply glut, especially in gasoline. Supporting this argument is the announcement yesterday by the Iraqi state-owned Oil Marketing Company reporting the country’s oil production has risen to 4.63 million barrels, the highest since January. Additionally, it was reported that stockpiles of middle distillates (diesel) are at a 5 year high. The Labor Department’s report may have been positive for equities but crude is not seeing any love with the September Nymex contract down 41¢.

Blog Weather 8-5-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly storage report yesterday which surprised the market noting 6 Bcf was withdrawn from storage last week. Now expectations weren’t for much of an injection, 3 Bcf, but no doubt the 6 Bcf was a bullish surprise. That being said, it appears traders front-run the report with Wednesday’s price jump of 10.6¢ for yesterday the market closed down ½¢ at $2.834. Temperatures continue to be above normal meaning gas fired electric generating plants are sucking hard on the pipe but we’re going to be fast approaching the shoulder season (September and October) and the bears are going to be feeding on short positions, especially if we get to $3.00. And they’re doing just that today with natty being down 4.6¢.

Elsewhere

It’s time! The 2016 Olympic Games Opening Ceremony in Rio de Janerio is tonight! And the most decorated athlete in Olympic history will carry the United States flag. Of course I’m talking about Michael Phelps. He was selected by a vote of the members of the U.S. Olympic team. Phelps is the logical choice as he heads into his 5th Summer Games. He has won 18 gold and 22 bronze and silver metals, far more than any other athlete. Phelps skipped the open ceremony at the last three Olympics to rest up for the grueling 400 meters individual medley, which is held the next day. However, he is not swimming in that event in these games which made him available to carry the flag in tonight’s ceremony in Maracana. Phelps says he is “humbled by the significance of carrying the flag and all that it stands for.” Interestingly, last month Phelps was chosen by his teammates as a captain of the U.S. men’s swimming team for the first time,

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