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Morning Energy Blog – December 14, 2016

Equities and the Economy:

• Dow finishes at another record high.
• Yesterday marked the 7th consecutive close higher.

U.S. equities continued their relentless, post-election march higher. The Dow closed once again at a record high advancing 115 points, 0.58%, to 19,911 and just 89 points shy of 20,000! Now the 20,000 number has no technical significance but it is a major psychological level. Not to be left behind the S&P 500 and Nasdaq posted healthy gains with the S&P closing up 15, 0.65%, at 2,273 and the Nasdaq climbing a big 0.95%, 51 points, ending at 5,464. Here are some facts you should know.

• Year to date the Dow is up more than 14%. The S&P 500 is up 11%.
• The Dow is up 1,600 points since the election.
• The Dow eclipsed 10,000 in March 1999.
• The current bull market is the second longest in history beginning in March 2009.
• Since March 2009 the Dow is up 180% and the S&P 500 is up 200%.
• Since its inception the Dow’s average annual return has been 7.27%.
• July has been the best month historically with an average return of 1.3192%.
• September has been the worst month with an average loss of 1.0586%.
• The Dow’s best year ever was 1915 when the index gained a whopping 81.66%.
• The Dow worst year ever was 1931 when it lost 52.67%.
• The index’s best decade was 1990’s when it gained 318%.
• The index’s worst decade was the 1930’s when it lost 40%.

Moving on to today, the FOMC will conclude its two day meeting today and with a 99.9% probability they will raise short term interest rates by ¼%. This is the first time this year rates have been raised. When rates are raised today it will only be the second time in a decade that the Fed will have raised rates with the first time being exactly a year ago.

I’ve said this before but I would not put additional money into the market right now. CNN’s Fear & Greed Index is at 88 indicating a way over-bought market. The index has only been higher than 88 twice in the last 2 years, in June of 2014 when the S&P was near 1850, made its way to 1950 before falling to 1750 and then in July of this year when the S&P traded very near 2175 before falling to 2050. Now I’m not saying to short this market but I would not add to a long position.

This morning ahead of the conclusion of the FOMC meeting U.S. stocks are down slightly with the Dow down 35 points.

Oil

• Oil prices close marginally higher with WTI settling up 15¢ at $52.98.
• WTI price highest since July 2015.

The oil market continues to get support from the OPEC and non-OPEC announced cuts of about 1.8 million bpd, almost 2% of global supply. The cuts are to begin in January with the agreement ending in June. Feeding the bulls was the IEA’s, not our EIA, forecast released yesterday stating the agency expects global demand to grow by 1.4 million bpd this year which is up 120,000 bpd from its previous forecast. For 2017 it expects growth of 1.3 million bpd.

The API released its weekly crude and products report last evening stating aggregate inventories (crude, gasoline and products) rose by a huge 8.8 million barrels last week. Forecasts were for an aggregate rise of 6.5 million barrels and the 5 year average is an increase of 4.8 million barrels. The API reported is having a bearish effect on oil prices with WTI down 57¢ this morning.

weather-12-14-2016
weather-bar-image-for-blog
Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices leak lower closing down 3.3¢ at $3.474.
• Cold over the next 10 days but trending warmer in the 11-15 day time frame.

The January Nymex contract closed 3.3¢ lower at $3.474 yesterday. It’s about the weather with the Arctic Bomb exploding in the Midwest and then moving east keeping the next 10 days very, very cold for particularly the Midwest. After that, however, the forecast is showing for some materially warm weather to enter the Midwest and even more so the southeast. You folks in the Midwest will welcome that after what you’re going through right now. The cash market is strong right now which is supporting the futures market with January up 5.0¢ as I write. The cold shot hitting the U.S. right now is definitely going to cause some well freeze offs particularly in the Bakken making next week’s storage report quite interesting. For those of you that don’t know, here’s how freeze offs happen. Most natural gas flowing out of a well head contains numerous components beside methane including water. When temperatures get unusually cold the water in the natural gas stream literally freezes creating a plug preventing gas from flowing. The operator of the well has to wait until temperatures rise and the plug melts for gas to flow again. You may ask, “Can’t you put insulation on the well to minimize or prevent a well from freezing off?” The answer is “yes” but freeze offs are so rare it’s not worth the cost of implementing measures to prevent a well from freezing off.

Elsewhere

When that holiday party conversation gets slow and an awkward silence descends upon your group throw this out, “Could dinosaurs fly?” With smug smiles I’m sure you’ll be barraged with “yeses,” and they would all be wrong. The respondents will undoubtedly try to impress throwing out that Pterodactyls flew. That is true, but the Pterodactyl is not a dinosaur. It is actually a reptile! There have been no dinosaurs discovered with powered flight.

On a logistical note, the next Morning Energy Blog will be published on Tuesday for I will be travelling beginning tomorrow through Monday. Have a great weekend!

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