Return to Blog

Morning Energy Blog – December 5, 2016

Equities and the Economy:

• Friday’s Labor Department’s employment report for November takes unemployment rate to 4.6%, lowest rate since August 2007.
• After hitting a record high on Thursday, Dow closes marginally lower, S&P 500 and Nasdaq end slightly higher.

Following the release of the Labor Department’s employment for November in the morning U.S. stocks ended little changed on Friday with the Dow losing 22 points closing at 19,170 and the S&P 500 and Nasdaq finishing higher up 1 and 5 points, respectively, ending at 2,192 and 5,256, respectively. Although the ending numbers are chatter it’s good to see we’re still close to record highs.

The big economic report of the day, and since the Great Recession of the month, was the Labor Department’s Employment Situation Report. Non-farm payrolls rose a hefty 178,000. The unemployment rate dropped to a 10 year low of 4.6% but a major reason for that is because the labor force participation rate dropped to its lowest level since June and is still near 40 year lows. A broader measure of joblessness that accounts for the underemployed and discouraged workers also fell declining from 9.5% in October to 9.3% in November, the lowest since April 2008. One piece of important data that came in disappointing was the hourly wages number at -0.1% at an annualized pace of 2.5%. The Fed looks at the wage data in determining monetary policy. Despite the negative wage data the bet is that the Fed will raise interest rates at their meeting this month. In all the labor department’s report was pleasantly adequate.

Moving on to this morning, Asian stocks all closed lower but, and after the big referendum in Italy over the weekend which has resulted in Prime Minister Renzi resigning, European equities are trading nicely higher and the “love” has spread to the U.S. with the Dow up 83 points,

Oil

• Oil prices continue to march higher with WTI and Brent settling at their highest level since July 2015.
• On Friday WTI added another 62¢ closing at $51.68.

At least for the short term OPEC seems to be accomplishing their goal of driving prices higher in the name of “balancing” the oil market. On Friday WTI closed up 62¢ at $51.68 and Brent settled 52¢ higher at $54.46 with both oils settling at their highest level since July 2015. Oil posted big gains on the week with WTI up 12.5% and Brent up 15.3%. The weekly gains marked the 3rd largest weekly gain in a decade. WTI’s lag could be on traders’ view that the U.S. producer, being the world’s marginal producer, will fairly quickly respond to the higher prices with expanded drilling programs. On Friday Baker Hughes in its weekly rig count report noting drillers added 4 rigs last week, 3 oil and 1 natural gas. The total rig count is now 597 which is the highest since January 2016. Producers were making the mid $40’s WTI work. They’re going to really like the $50’s!

This morning the bulls remain in control with WTI up 39¢ trading, and at a 16 month high. Since the OPEC agreement last week oil has rallied 15%. Bloomberg is reporting that OPEC members will meet with non-OPEC members in Vienna this Saturday to discuss the supply cuts.

Theoretically the deal has the potential to balance the markets, but it appears that Saudi Arabian Oil Minister Ali-Naimi agrees with me stating over the weekend “We tend to cheat.”

weather-12-5-2016
weather-bar-image-for-blog
Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices fall Friday with January closing down 6.9¢ at $3.436.
• Calendar strips close flat to marginally lower.

Natural gas prices fell on traders taking profits after a week of big gains driven by the weather forecast. Last week the 6-10 forecast was for below normal temperatures while mostly normal temperatures were forecast for the 11-15 day time frame. This morning not only is the 6-10 day cold, the forecasters moved the 11-15 day colder and on this morning’s forecast natty is screaming with the January Nymex contract up a whopping 18.2¢ hitting a high we haven’t seen since in 2 years! In just a month the front month price has popped more than 40%! That’s material my friends! Call me and let’s talk procurement strategy.

Elsewhere

We’re going to get a blast of cold weather this week! I wonder what the wooly bear caterpillar had to say about the severity of this year’s winter? What you say??? The legend is that the wider the rusty brown sections (or the ore brown segments there are, the milder the coming winter will be. The wooly bear caterpillar has 13 distinct segments of either rust or brown fur. The more black there is, the more severe the winter. This theory came for the work of Dr. C. H. Curran, curator of insects at the American Museum of Natural History in New York, who in 1948 took his wife 40 miles north of the city to Bear Mountain State Park to look at woolly bear caterpillars (Bet she was so excited to go on that trip!). Dr. Curran collected as many caterpillars as he could that day to try and forecast the coming winter. He continued his experiment for eight years attempting to scientifically prove a weather rule of thumb that was as old as the hills. The resulting publicity made the woolly bear the most recognizable caterpillar in North America.

So the question begs: Can the color of the fur of the woolly bear caterpillar predict the severity of the upcoming winter? Most scientists discount the folklore stating you need an awfully lot of caterpillars in one place over a great many years in order to attempt to draw any conclusions. That, however, doesn’t stop folks from having fun with it. For the past 10 years in October Banner Elk, North Carolina has held an annual “Woolly Worm Festival” highlighted by a caterpillar race. The official festival forecaster inspects the champion woolly bear and announces his forecast. If the rusty band is wide, it will be a mild winter. The more black there is, the more severe the winter. This year’s 39th race was won by Hans Solo. Official forecaster Tommy Burleson analyzed Hans and stated that Hans’ fur was telling him this winter would be milder than normal.

Disclaimer: Although the information contained herein is from sources believed to be reliable, TFS Energy Solutions, LLC and/or any of its members, affiliates, and subsidiaries (collectively “TFS”) makes no warranty or representation that such information is correct and is not responsible for errors, omissions or misstatements of any kind. All information is provided “AS IS” and on an “AS AVAILABLE” basis and TFS disclaims all express and implied warranties related to such information and does not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of any of the information. The information contained herein, including any pricing, is for informational purposes only, can be changed at any time, should be independently evaluated, and is not a binding offer to provide electricity, natural gas and related services. The parties agree that TFS’s sole function with respect to any transaction is the introduction of the parties and that each party is responsible for evaluating the merits of the transaction and credit worthiness of the other. TFS assumes no responsibility for the performance of any transaction or the financial condition of any party. TFS accepts no liability for any direct, indirect or other consequential loss arising out of any use of the information contained herein or any inaccuracy, error or omission in any of its content. This document is the property of, and is proprietary to, TFS Energy Solutions, LLC and/or any of its members, affiliates, and subsidiaries (collectively “TFS”) and is identified as “Confidential.” Those parties to whom it is distributed shall exercise the same degree of custody and care afforded their own such information. TFS makes no claims concerning the validity of the information provided herein and will not be held liable for any use of this information. The information provided herein may be displayed and printed for your internal use only and may not reproduced, retransmitted, distributed, disseminated, sold, published, broadcast or circulated to anyone without the express written consent of TFS.