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Morning Energy Blog – December 21, 2016

Equities and the Economy:

• Record highs again for Dow and Nasdaq.
• Banking sector driving the market.

The Dow gained 92 points yesterday, 0.5%, closing at a record high of 19,975 trading intraday even higher at 19,988, just 12 points shy of 20,000. The Nasdaq also closed at a record high at 5,484, up 27 points, 0.5%. While the S&P 500 did not close at a record it did gain 8 points, 0.4%, finishing at 2,271 missing its record by a single point and its intraday record by 5 points. With the advent of higher interest rates and the belief that Donald Trump will advocate for banking deregulation these two tail winds have sent banking sector stocks soaring with the group contributing half of the market’s advance since the election. The SPDR S&P Bank ETF, a popular way to bet on the banking sector, is up a whopping 31% y-t-d and the Financial Select Sector SPDR ETF is up 22% this year.

There was only one economic data point of significance released yesterday and it was the Philadelphia Fed’s non-manufacturing index which posted a solid number showing the sector continues to grow.

This morning things are very lackluster with the Dow down 16 points. As I’ve said before, closes are more important than opens and in bull markets the opens are flat to down but the closes are higher. That’s been the pattern of late.

Oil

• January Nymex contract expires little changed.
• API releases bigger than expected inventory draw but correction to last week.

The WTI January Nymex contract expired little changed up 11¢ at $52.23. Brent settled up 43¢ at $55.35. Yawn. WTI seems to be consolidating. Since the beginning of December WTI has been trading between $50.00 and $54.50. The API released its crude and products report last evening noting a hefty draw in crude from inventories, 4.1 million barrels, and way above expectations of 2.4 million but this was a correction to last week’s data which showed an inordinately large build in stocks.

Libya is exporting more oil. Yesterday the national oil company there reported that pipelines from its El-Sharara and El-Feel fields in the country’s southwest were once again flowing after being closed for two years. This “new” oil will immediately add 175,000 bpd and another 100,000 bpd over the course of the next 3 months. I don’t think OPEC is counting it in their production quotas.

Russia announced that on average its production for 2016 will be 10.466 million bpd. That’s up 2.5% from a year ago.

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Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas gets whacked closing down almost 13¢ yesterday on warmer forecast.
• Rebounding hard this morning.

On the warmer weather forecast the bears were out in force yesterday with the January contract closing down a big 12.9¢ at $3.263 and are down about 15% for this month’s two year high. After last year’s lack of it, volatility has returned with a vengeance this year exemplified with natty being up 23.3¢ this morning after falling hard yesterday. The short term weather forecast is not supporting the move up for if anything the weather forecast has gotten warmer overnight. The only thing I can think of is some weather forecasting company (a forecast I haven’t seen) has released a longer term forecast with a cold bias.

Elsewhere

Last week was a first in the electric wind generation sector. America’s first commercial offshore wind farm began producing electricity. The farm, developed by Deepwater Wind and located 3 miles off the shore of Rhode Island, has a 30 MW capacity and has been under construction for two years. The project’s electricity is being fed into National Grid USA via at 6.5 mile undersea cable to Block Island under a 20 year contract that starts at 24.4¢/kWh before increasing to 46.9¢/kWh in the final year. Going to need very specific circumstances to make those economic work!

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