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Morning Energy Blog – July 1, 2016

Equities and the economy

Brexit??? More like Brexwhat! U.S. stocks continued higher for the third consecutive day with the Dow popping 235 points, 1.33%, to 17,930, the S&P 500 gaining 28 points, 1.36%, ending at 2,099 and the Nasdaq rising 63, 1.33%, to 4,843. We just had the best 3 day gain in stocks since February 17tth, which was near the nadir of the year, and have just about captured everything back from the losses associated with Brexit. Also, the Dow and S&P are now back positive for the year with the former up 2.9% and the latter up 2.7% The Nasdaq is down 3.3%. U.S. and European assets are getting a boost from by report indicating the ECB is weighing changes to its bond buying program and the Bank of England is poised to further ease monetary policy. Regarding the ECB, it’s considering changing the rules regarding the types of bonds it can buy as part of its stimulus package amid concerns it could run out of securities to buy under current stipulations. It’s been buying sovereign bonds (country) and wants to buy corporate bonds. That’s great for bonds and stocks, but at the same time it makes me queasy. It’s buying so much its running out of bonds to buy???

Concerns over risk remains though. Safe haven gold has been a great performer this year being up 24% posting its best two gain quarter since the end of 2007. The utility sector, another safe haven asset, which is an equity but performs more like a bond, is up 21% this year.

On the fundamental data front, the Labor Department released its weekly unemployment claims report noting first time unemployment claims last week were 268,000 coming in precisely at expectations. Claims have been below 300,000 for 69 consecutive weeks now and this is the longest streak since 1973. Nice. The Chicago Purchasing Managers Index for June came out yesterday at 57 which was incredibly strong rising from May’s 49. Although this is a very good number it is parochial in nature and I’m more interested in the more catholic national ISM which will be released later today.

China released its official PMI for June coming in at 50 which is right at the expansion/contraction dividing line. Unfortunately, this is a 4 month low. Things aren’t much better in Japan where it’s manufacturing index hit a 4 month low. The strong yen is killing manufacturers there.

With yesterday being the end of the quarter and today the unofficial beginning of the long holiday weekend investors and traders are kicking back relaxing with the Dow chopping around currently up 46 points.

Oil

The oil traders that were trading the equity/oil correlation yesterday got thumped for while stocks rallied oil got whacked. WTI fell $1.55, 3.1%, closing at $48.33 while Brent fell 93¢, 1.9%, settling at $49.68. The focus is now on Nigeria increasing production after the government bought off the rebels in the southern part of the country (solely my conclusion but that’s how it works there), Canadian tar sands production returning and OPEC production increasing. Regarding the latter, supply rose to 32.82 million bpd last month, a record level, and 250,000 bpd above the May level. Also, it certainly didn’t help the bulls that Saudi Arabia announced it is lowering its price for Arab Light crude by 40¢/bbl for its Asian customers. Iran continues to gain market share. A supertanker of its oil is headed for Poland’s Baltic Sea port of Gdansk. This is the first Iranian oil shipment sold to this part of the Baltic Sea since the lifting of sanctions in January.

This morning all is quiet with WTI up 31¢. Complete chatter.

Blog Weather 7-1 -16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

With healthy demand of sustained above normal temperatures in the forward weather forecast natural gas remains strong yesterday closing up 6.1¢ at $2.924. The EIA released its weekly storage report which was mildly supportive noting an injection of 37 Bcf. While this was pretty much at expectations, it is markedly lower than the injection last year at this time of 73 Bcf and the 5 year average of 78 Bcf. Even with the low injection rates this summer, inventories are still 23% above last year at this time and 25% above the five year average. Remember, we came out of the winter with a record amount of gas in storage.

It feels like the market has reached a new equilibrium. Hot weather, increased fundamental demand and flat to down production is being offset by more electric generation from coal now that we’re near 3 bucks. The market is very quiet this morning with natty down 0.2¢.

Elsewhere

If you’re going to one of the expected record number of people (36 million) traveling by car this holiday weekend you’re in for a pleasant surprise. Gasoline prices are anomalously falling. This is the reversal of the usual situation. The average national price for gasoline is expected to be $2.27/gallon this weekend. As of yesterday, the average stood at $2.286, down 3.7¢ from last week and down 48.6¢ from the year ago level of $2.772 and down from two years ago when the price for this weekend was $3.66. Retail gasoline prices are at their lowest level for this time of year since 2005.

Have a great and safe holiday weekend. GO USA!

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