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Morning Energy Blog – December 1, 2016

Equities and the Economy:

• Dow and S&P 500 end little changed on the day. Nasdaq gets hit.
• Stocks record solid gains for the month of November.

The Dow and S&P 500 ended little changed yesterday with the former closing up 2 points at 19,124 and the latter falling 6 points to 2,199. The Nasdaq took it on the chin fell 56 points, 1.05%, ending at 5,324. Intraday the Dow and S&P posted new record highs. The Dow and S&P had a very good month. The Dow posted a 5.4% gain, it’s best monthly performance since March. The S&P rose 3.4% and the Nasdaq logged a 2.6%, the best month for both since July.

Yesterday we had a plethora of economic data. ADP Research Institute released its private sector payroll report noting employers added a robust 216,000 new jobs in November. This was well above the Street’s forecast of 165,000. ADP’s report is looked at by investors as insight into the all-important Labor Department’s Employment Situation Report which will come out tomorrow. The Commerce Department reported that consumer spending rose 0.3% in October with personal income rising 0.6%. This was strong. The personal consumption index, the Fed’s preferred measurement of inflation, rose 0.2% for the months which was a little below expectations. For the 12 month period inflation is only 1.4%. Remember, the Fed’s target is 2%. That being said, it’s very widely expected the Fed will raise interest rates at the FOMC meeting in 2 weeks. Finally, the National Association of Realtors reported its index of pending home sales rose only 0.1% in October which was disappointing. Analysts are pointing to mortgage rates which have been rising of late, especially since the election, which could negatively affect next month’s index.

This morning U.S. European stocks are trading lower, especially London’s FTSE being down 1.24%, but U.S. equities are hanging in there with the Dow up 62. The S&P flat and the Nasdaq is down 41.

Oil

• OPEC agrees to a production cut of 1.2 million bpd.
• Prices rocket 9% higher.

In its first production cut in 8 years OPEC agreed to cut output by 1.2 million bpd with Saudi Arabia taking the biggest hit reducing production by almost 500,000 bpd to 10.06 million bpd. It’s Gulf allies, the UAE, Kuwait and Qatar, will reduce production by a total of 300,000 bpd. Iraq, which had insisted on being exempt from any cuts to fund its fight against ISIS, agreed to a 200,000 bpd cut. Iran in a major victory was allowed to boost production slightly from its October level. Russia, who is not an OPEC member, said it will gradually cut output in the first half of 2017 by up to 300,000 bpd. The combined OPEC-non-OPEC cut is 1.8 million bpd which represents almost 2% of global crude production.

In response to the announcement oil prices went past the moon to Mars with WTI positing a huge gain of $4.21, 9.3%, closing at $49.44. Brent popped $4.09, 8.8%, settling at $50.47. Crude prices are up in excess of 10% in just the last two sessions.

I told you there’d be an agreement. Saudi Arabia may adhere to its production cut but the rest of the countries, including Russia, will cheat. Besides, Russia, which is producing at record levels, didn’t state what it’s going to use as the benchmark for the cut.

I’m sure U.S. producers are giddy and are opening the file cabinets planning where next to drill.

I hope you have some energy stocks in your portfolio. ConocoPhillips stock price jumped 10% yesterday. Anadarko was up 15%, and get this, Marathon Oil’s stock price rose, drum roll please, 21%!

This morning oil prices are continuing to surge higher with WTI up another $1.77. Yowza!

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weather-bar-image-for-blog
Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices continue to rise on cold weather.
• This morning up a hefty 9.5¢.

Colder weather is bringing out the bulls with natural gas rising 3.7¢ yesterday closing at $3.352. Hints by weather forecasters that some cold shots could hit the East are bringing out the buyers. There’s even talk of a Polar Vortex (remember that term from the ’13-’14 winter!) occurring in late winter and early spring. This morning natty is up a big 12.0¢ with the weather forecast showing some pretty darn cold weather penetrating all the way down to the Gulf Coast in the 8-11 day period.

Today the EIA releases its weekly storage report with traders looking for a 50 Bcf withdrawal.

Elsewhere

I’m running late so I’m going to keep today’s Elsewhere brief. Being we’ve just had an election, I chose to modify an old Chinese proverb to reflect how I perceive people vote.

Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime. Give a man another man’s fish and he’ll vote for you forever!

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