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Morning Energy Blog – December 2, 2014

Good morning. Black Friday, and the whole weekend, turned out to be exactly that for retailers. The trade group National Retail Federation said Sunday that total spending over the Thanksgiving weekend were down 11% from last year. That and Moody’s downgrade of Japan’s credit rating weighed on the equities with the Dow losing 51 points to 17,777, the S&P 500 fell a14 to 2,053 and the more volatile Nasdaq getting whacked 64 points, 1.3%, to 4,727. Oh, and it certainly didn’t help that a survey by HSBC showed Chinese manufacturing activity lost steam in November adding to signs of an economic slowdown in the world’s second largest economy. The index edged down from 50.4 to 50. 50 is the demarcation between growth and contraction and unfortunately this index has been moving from the upper left to the bottom right on a chart. China’s growth has now slowed to a 5 year low of 7.3%. IT’s time for another country or countries to step up! The US is doing much better and pulling its weight. Come on Germany. Come on France. Shed some of those socialist ways and put more capitalism into your economies!

Back to the retail sales over the weekend, personally I think folks are 1) reading reports that maybe a lot of those Black Friday sales aren’t really only available on Black Friday, and even more, I believe consumers are migrating more to on-line shopping instead of fighting the crowds. And my theory is correct. This morning Wal-Mart announced it saw its biggest online day in its history for orders on Cyber Monday. Wal-Mart said mobile accounted for 70% of traffic to its website between Thanksgiving and Cyber Monday with 1.5 billion hits. It was also the company’s biggest-ever day for same-day pickups with orders up 70% over last year. And oh, as things change, they stay the same. One of the top selling pick-up items was the 2014 Holiday Barbie Doll.

This morning we’re getting a nice bounce from yesterday’s disappointing market action with all the major global indexes higher. Japan’s Nikkei is doing especially well hitting new 7 year highs fueled by Prime Minister Abe’s and the BOJ’s recently announced new QE program and despite Moody’s recent downgrade. Lesson learned: QE trumps downgrade. Not to be left behind, China’s Shanghai is doing darn well too hitting its highest level since July 2011 also on recently announced stimulus from the PBOC. Locally, there’s no major overnight news affecting U.S. stock futures which are up on the coattails of the global action with Dow futures up marginally by 36 points.

Oil bounced huge off of 5 year lows yesterday with WTI jumping $2.85, 4.3%, settling at an even $89 and Brent popping almost as much, $2.39, 3.4%, closing at $72.97. I’m not calling yesterday’s price action a “dead cat bounce” but crude was egregiously oversold. Yesterday’s low of below $64 may be a floor for a consolidation or maybe a low for some time. The panic liquidation has run its course. Now I’m not saying we won’t test this low and we may even break it but I do believe the worst is behind. I’m not advocating getting long but I will be keeping a very close eye on the term structures (the relationship of the front months to the deferred months) for that is where the well informed money plays. That is where elephants play.

Regarding OPEC, the trends are against the cartel’s future. Back in the mid 80’s OPEC’s share of global crude supplies was approximately 27%. By 1990 that rose to 27%. By ’95 it was almost 40%. 2000, 42% and it peaked at around 44% in ’08-’09. It is now approximately 42%, and is slipping as a result of U.S. and Canadian production. OPEC prosecution seems to be peaking as well. Back in ’02 it was about 42 million bpd and rose relentlessly reaching 32 million bpd in ‘08. Production fell from that peak to about 29.2 million bpd during the Great Recession, but has never gotten back to its peak level peaking again in ’12 at 31.7 million bpd. Now it’s down to 30 million bpd, and falling even as North American production is rising. I don’t know about you but if OPEC’s era is ending, I won’t miss it. This morning WTI is down $1.10.

The matador, i.e. weather forecaster, continues to spear the natty bull with the January contract falling 8.1¢ yesterday closing at $4.007. Natural gas has been pummeled the last 3 days and you can point to the NOAA for the cause. They came out with their December forecast over the weekend predicting the entire nation, save the Gulf Coast, will average above normal temperatures for the month. It that’s not a bull killer I don’t know what is. Front month prices are down 48¢ in less than a week as any threat of cold weather in the near term has evaporated.

Blog weather 12-2-14
Oct 30- 2nd
Courtesy of MDA Information Systems LLC

This morning’s forecast shifted slightly cooler in the eastern 1/3rd of the nation for the 6-10 day term but warmer in the 11-15 day period and traders are viewing the net as bearish pushing prices lower this morning by 11.2¢. Here’s a free one for you. Calendar 2015 is 4¢ off it’s all time low. Have a good day.

Bob Shiring

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