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Morning Energy Blog – January 23, 2015

Equities and the economy

Good morning.  Over the past few years I’ve occasionally said “thank you” to the Fed for its QE action in supporting the economy which helped drive stocks higher. Now I’m saying “Thank you ECB. Thank you Mr. Draghi!” Six years after the Fed took a similar step, the ECB took its turn unloading a QE bazooka on a stagnant European economy stating it will buy $69 billion per month of securities sending European and U.S. equities higher. Mr. Draghi said the QE would continue at least through September 2016 or until inflation reaches 2%.

On the news U.S. stocks rallied big time for the 4th consecutive day yesterday with the Dow gaining a huge 260 points (1.48%) to 17,814, the S&P 500 up 31 (1.53%) to 2,063 and the Nasdaq jumping 83 (1.78%) ending at 4,750. And guess what amigos? The S&P has now wiped out all of its losses for the year. Regarding economic data, the only report of significance was the weekly jobless claims which came in at expectations of 307 thousand which was below last week’s 316 thousand so this was mildly positive.

Not unsurprisingly, the euro is just getting destroyed tumbling to $1.1158 per U.S. dollar, a level not seen in 11 years. This will definitely make euro based exports cheaper and U.S. exports more expensive, to the chagrin of all those grain farmers who rely on the U.S. selling grain abroad. It’s is highly likely we see dollar/euro parity in the future. Maybe by the end of this year.

Overnight the Asian markets all closed in the green playing catch-up to the European and North American markets. As I write the European markets are screaming higher with both Germany’s DAX and France’s CAC 40 up over 2% which equates to a staggering 356 Dow points, but alas, the Dow is not only not up but it is down 56 this morning. The ECB’s QE effect, while positive globally, will help Europe, especially its stock market, more than the U.S.

Oil

Equity prices were soaring and are usually a boost for oil prices but yesterday that did not happen for WTI lost $1.47 ending at $46.31. Brent fell less, 51¢, settling at $48.52. The clear impetus for the move was the day delayed because of the holiday release by the DOE of its weekly crude and inventory report which showed a massive and much greater than expected build in both crude inventories and aggregate inventories (including gasoline and products [diesel, jet fuel]). On an aggregated basis a rise of 1.4 million barrels was expected with the actual number being a rise of 7.4 million barrels. Crude inventories were expected to rise 1.3 million barrels with the actual number being, drum roll please, 10.1 million barrels! WTI stockpiles are now at the highest level for this time of year in at least 80 years! Folk’s that’s when Calvin Coolidge was President! The build in inventories was “blamed” on lower refinery runs as they gear up for “maintenance season” which is next month as they shift to making the summer blend of gasoline required by air quality standards. I’ve been saying for a while that the contango in the term price structures were showing crude is bidding for storage. Now it’s showing up in the storage numbers!

But let’s move on this morning for there’s big news in the oil markets and that is the king of Saudi Arabia, Adbullah bin Abdulaziz, died early this morning at the age of 90. A royal court statement announced the death and that Adbuhhah’s half-brother, Crown Prince Salman, who is 79 years old, was declared king and Prince Muqrin, 69, is now crown prince. On the news Brent prices jumped about 3% on fears of a potential power struggle but the market quickly calmed down with WTI down 5¢ this morning. The king’s impending demise had been well known for a long time and the succession, while not public, has been assumed to have been thoroughly discussed inside the palace walls. Importantly, the new king is not expected to change Saudi Arabia’s current oil strategy of maintaining market share.

By the way, from a technical point of view, today is the 10th session we’ve traded in the low to mid $40’s. Your antennae should be up.

Blog Weather 1-23-2015
OCT 28 - 2ND
Courtesy of MDA Information Systems LLC

Natural gas

The EIA released its weekly natural gas storage report yesterday showing 216 Bcf was withdrawn last week which was less than the 225 Bcf the market was expecting and the bears came a-running pushing natty 13.8¢ down closing at $2.835. The low of the day was $2.766 which is a 2 ½ year low. This morning natty is up 11.6¢ on a slightly colder weather forecast. Quite frankly, you folks in PA, NY and New England are going to have to really bundle up with the below normal temperatures coming at what is normally some of the coldest weather of the year. I think prices are also up today on some short covering ahead of the weekend. Also, keep coal in mind!

Elsewhere

You just gotta love this! Once a year the world’s “leaders” gather in a small, beautiful Swiss town called Davos. There they talk amongst themselves about the “great problems” facing the world. In recent years their discussion has focused on global warming and the dumping by “man” of gases into the atmosphere allegedly causing the earth to warm. They pat each other on the back to congratulate themselves on supposedly facing this problem and bringing it to the world’s collective attention. And then they get in their private jets, which brought them to Davos, and go home. All 1,700 of them!!!

Have a good weekend.

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