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Morning Energy Blog – January 27, 2014

Equities and the Economy

Good morning. With potentially the biggest blizzard of all time (which I’m hearing is turning out to be a non-event) bearing down on the northeast coast distracting investors equities chopped around on either side of unchanged ending with small gains. The Dow closed up 6 at 17,679, the S&P 500 added 5 to 4,772 and the Nasdaq ended 14 higher at 4,772. All chatter. That being said, it was pretty impressive the equities market blew off the fact the leftist, anti-austerity Syriza party won the elections in Greece, and won decisively. That being said, the results were expected and you could say the win was priced in the market. Now while the U.S. has limited direct exposure to Greece’s relatively small economy (I mean, how much olive oil do you need?!) political uncertainty and volatility in the region could hurt U.S. multinational companies. Additionally, the ECB’s bazooka of a QE is still being digested by the market and providing support particularly for European stocks.

Energy stocks found some buyers yesterday and was the best performing sector after Adbulla al-Badri, OPEC’s secretary-general, stated yesterday that oil prices may have reached a floor and could move higher very soon.

This morning is starting out badly. Very badly. The Dow is down 270 points. I’m not sure you know but its earnings season once again and disappointing reports after the bell last night from Microsoft and United Technologies sent their stocks falling 3% and 2.5%, respectively, and are weighing heavily on stocks this morning. This morning Caterpillar reported 4th quarter adjusted results which were well short of analysts’ expectation and they issued a disappointing outlook for 2015. Proctor and Gamble, the world’s largest household products maker, said the strong dollar would hit its 2015 sales by 5% and net earnings by 12%. That’s material folks. So you can see, the “fundamentals” aren’t looking so good right now. Adding fuel to the fire, the Commerce Department released Durable Goods Orders for December this morning showing an unexpected decline. Let’s not forget, it’s been years since we’ve seen a 10% correction. We’ve gotten spoiled with multiple years of double digit gains in equities.

Oil

Energy stocks may have climbed but the fungible didn’t with WTI closing down 44¢ at $45.15 and Brent falling 63¢ at $48.16. WTI initially found a bid on Mr. al-Badri’s comments but the bears sold into the “jaw boning” with WTI ending at its lowest level in nearly 6 years. There might be something though to Mr. al-Badri’s comments for WTI has not traded lower in 10 session. That’s called “consolidation” and the momentum traders are definitely out of the market. Forgive the redundancy, but the time to get short is over.

The rig count properly continues to decline with Baker Hughes, the go-to company for such data, reported the number of oil and gas rigs in use in the U.S. fell to 1,633 last week, the lowest since August 2010. This number will go lower folks. It has to.

This morning WTI continues to chop around being up 34¢ which is actually pretty impressive considering equities are unfortunately getting obliterated. Now the question is “When to get long?”

weather 1-27-15
WEATHER BOTTOM STRIP
Courtesy of MDA Information Systems, LLC

Natural gas

“Storm. What stink’n storm?” That’s what natural gas traders said yesterday pushing natty down $0.105 settling at $2.881. This phase of the bulls and bears war is settling in around the $3.00 number. The bears point to ample supply and the bulls point to more demand due to colder weather forecasts and support from coal to gas switching. Returning to the weather forecast, you folks in the northeast will need to bundle up for the 6-15 day forecast has moved materially colder which is bringing out the bulls this morning who are pushing the February contract up 6.4¢. It’s WWI. The trench warfare continues.

Elsewhere

How much would you pay for a lock of hair? Not just any hair, the hair of Abraham Lincoln. History buff, Donald Dow of Ft. Worth, TX is selling his memorabilia of the 16th President for $809,889. The price listed is an aggregation of items. The ticket price for the lock of hair, itself, was $25,000. Other items put up for bid in the auction were a letter to a friend written by John Wilkes Booth, a military arrest warrant for Booth, and a Lincoln penned letter to a Baltimore attorney hinting that the war was not going well for the north.

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