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Morning Energy Blog – December 12, 2016

Equities and the Economy:

• Dow and S&P 500 once again finish at record highs.
• S&P and Dow has best winning streak since June 2014.

As Buzz Lightyear would say, “To infinity and beyond!” which is characterizing the U.S. stock market. On Friday the S&P and Dow closed at another record high with the former posting a hefty gain of 142 points, 0.7%, closing at 19,756 and the latter adding 13, 3.6%, finishing at 2,260. Both indexes closed up 3% on the week. Although the Nasdaq didn’t make a record high it had the best week of the three major indexes rising 3% on the week. On Friday it climbed 27 points, 0.5%, ending at 5,445. Boosting stocks on Friday was fundamental data which came in the form of the University of Michigan’s Consumer Sentiment index which came in way higher than forecasts. Going into the report the market was looking for a “94.” The actual number was 98 which not only exceeded forecasts but took the index to a new multi-year high last seen in early 2015. This was indeed an “impressive” number. The U.S. consumer is feeling much more secure.

The big event this week is the FOMC meeting tomorrow and Wednesday. It is widely expected that the Fed will raise interest rates by ¼%. Unlike the last few years when talk of an interest rate rise would take equity prices lower, this one will have no effect. Not only is a rate hike built in, but the “Trump euphoria” will trump the effect of rate hike. This morning the market is taking a wait-and-see attitude with the Dow up 33.

Here’s food for thought. Will we see Dow 20,000 before the end of the year?! If so, wow!

Oil

• WTI closes up $1.07 at $50.84.
• U.S rig count gains a big 27 rigs last week.
• Non-OPEC members agree to cut production by 558,000 bpd.

With OPEC meeting in Vienna with 11 non-OPEC members this weekend to convince them to join OPEC’s decision to cut production, traders didn’t want to be short going into the weekend taking oil prices higher. WTI closed up $1.07, 2.1%, closing at $50.84. Brent rose 89¢, 1.7%, settling at $53.89. Many of you may wonder why I include the Brent price in my Blog. A decade and more ago WTI was indeed the “global” price of oil. However, ever since the explosion of shale oil production and associated transportation constraints, Brent is now recognized as the “global” price of oil. Pretty much every country in the world pays the Brent price. Only here in the U.S. is WTI’s price the benchmark.

Let’s move on to today because we now know the results of the Vienna meeting. It appears that OPEC has been successful in convincing Russia and a group of non-OPEC producers in cutting production to the tune of 558,000 bpd. Russia has been asked to cut production by 300,000 bpd which Russia said they will do over a 6 month term. This is the first OPEC/non-OPEC production agreement since 2001. Saudi Arabia has also agreed to further cut production from the original OPEC agreement. With these new developments total cuts will total 1.8 million bpd, close to the 2% of total global production. The announcement has driven WTI prices soaring this morning with the price up $1.88, which is actually down from earlier when it was up $2.12. That being said, oil prices are at a 2 year high.

The OPEC/non-OPEC production agreement is giving the U.S. producer a Christmas present. They’re jumping for joy! With the restructuring they’ve done over the past year or so they were beginning to make mid-$40’s work. Low to mid-$50’s will bring out the rigs. Oh, it already has! Last week Baker Hughes released its rig count report noting the rig count jumped 27 rigs last week, 21 of which were oil. The U.S. rig count is now up a whopping 404, 55%, from its low last May. You’re going to see it go higher. It’ll take about 12 months for production to really surge in the country.

weather-12-12-2016
weather-bar-image-for-blog
Courtesy of MDA Information Systems LLC

Natural Gas

• January adds another 9.2¢ closing at $3.695.
• Arctic Bomb hitting this week and next.

The bulls continued to push natural gas prices higher on Friday with the January Nymex contract closing up 9.2¢ at $3.695. Winter storm Clay and the Arctic Bomb (which will be taking temperatures 29 degrees below normal in Chicago on Thursday!) pushed prices higher. But let’s move on to today because it’s a whole new paradigm, more specifically, a whole new forecast. While the Midwest and east are going to get some very cold temperatures over the next two weeks, the 11-15 day forecast is showing much warmer than normal temps to enter into the eastern U.S. in the 11-15 day period. This forecast is crushing natty with January down a huge 23.5¢. A trader lives and dies on the weather forecast in the winter!

Elsewhere

With what seems to be a global shift in sentiment in politics of late, I just had to include this.

world-leaders-leaving

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