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Morning Energy Blog – March 15, 2016

Equities and the economy

Unsurprising to me, yesterday was a quiet day for U.S. stocks with the Dow closing up 16 at 17,229, the S&P 500 slipping 3 to 2,020 and the Nasdaq inching up 2 points to finish at 4,750. By the way, that Dow close was a new high for the year. I say “unsurprising” because investors have a central bank bonanza coming at them this week with the Bank of Japan, FOMC, Bank of England and Swiss National Bank all meeting this week. Whew! Investor caution is understood. Interestingly, equities held their ground in the face of declining oil prices. Let’s move on to economic data. The Labor Department reported yesterday that the unemployment rate fell in 28 states in January, rose in 8 and was unchanged in 14. Overall employment rose in 30 states with Florida, Texas and North Carolina posting the largest gains and 20 states recorded job losses. Interesting that Texas was in the top 3 with the large number of layoffs in the oil and gas industry. By the way, Texas and Florida do not have a state income tax.

While you were sleeping the Bank of Japan concluded their meeting and made no changes to their monetary policy. This is fairly logical considering at their previous meeting they went into the negative interest rate territory surprising the market. They need to let the waters calm before making any further moves. In fact, in their post meeting communique after this meeting they went out of their way to state that further lowering interest rates (more negative) is not on the table.

Today our FOMC begins its two day meeting with their post meeting communique to be released tomorrow afternoon. No press conference is scheduled. The market is not expecting any changes in interest rates.

The major indexes closed mixed and the European bourses are trading marginally lower and with no other data or news U.S. markets are following Europe’s lead being down marginally with Dow futures off 64 points. Yesterday we began the same way and closed pretty much unchanged so let’s see if we have a repeat of that today.

Oil

After six weeks of material gains (50%) oil prices retreated yesterday with WTI closing $1.32 lower, 3.4%, at $37.18 and Brent off 86¢, 2.1%, settling at $39.53. I believe the market is hitting an equilibrium level balancing increasing supply from Iran and a contraction of production here in the U.S. Based on yesterday’s closes June WTI was just shy of $40 and July forward was over $40. Producers see that and that will bring in some hedging. Numerous producers have stated mid-$40’s will spur drilling. Speaking of Iran, OPEC’s latest monthly report showed Iranian production increased for the 5th consecutive month to 3.1 million bpd. Iran’s target is 4.0 million bpd which is their presanction level.

This morning WTI is on its heels being down 80¢. Call it a reaction to falling equities.

Blog Weather 3-15-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices closed flat to Friday with the April contract off 0.3¢ at $1.819. Chatter. Similar to oil, prices have rallied sharply, 25¢, over the past 7 sessions. This week we’re seeing some very warm temperatures with Houston challenging record highs (my A/C has been running). Next week temps return to normal and then the country warms up again to marginally above normal temps. Not much load the next few weeks folks. That being said, traders are looking to the future, i.e. summer, and pushing natty higher this morning by 6.8¢. The Spring Rally continues!

The FERC has authorized Cheniere Energy to export additional LNG cargos from its Train 1. Cheniere has stated it plans to export 8-10 cargos as part of its commissioning process. FERC noted the additional exports are only part of the commissioning process and that authorization for full service still needs to be granted which requires further review.

Elsewhere

You probably don’t know who Amedeo Giannini is. Amendeo Giannini was born in San Jose to Italian immigrants and lived from 1870 to 1949. In 1872 at the age of 32 he took over his father’s produce business (his father was shot by an employee over a pay dispute). His mother remarried and her husband began a produce brokerage business for which Giannini went to work as a broker. He went back to college but dropped out believing he could do better in business than in school. And he was right for he was quite successful as a produce broker, commission merchant and produce dealer. He later married a woman whose father was a real estate magnate and rose to the position of director of Columbus Savings & Loan, a company in which his father-in-law owned an interest. At the time, banks were run for the benefit of the wealthy and the well-connected. Giannini observed an opportunity to service the increasing immigrant population that were without a bank. He came to loggerheads with the other directors who did not share his sentiment and quit the board in frustration and in 1904 started his own bank which he named Bank of Italy.

The bank was housed in a converted saloon as in institution for the “little fellow.” It was a new bank for hardworking immigrants other banks would not serve. He offered those ignored customers savings accounts and loans, judging them not by their wealth, but by their character. Deposits on the first day totaled $8,780. Within a year, deposits soared to $700,000 ($13.5 million in 2002 dollars).

Then the 1906 San Francisco earthquake struck causing fires and leveling much of the city. In the face of widespread devastation, Giannini set up a temporary bank, collecting deposits, making loans and proclaiming that San Francisco would rise from the ashes. He moves the vault’s money to his home in then rural San Mateo and moved money, 18 miles by horse and wagon, in a garbage wagon hiding the valuable cargo beneath the garbage. Giannini is credited with introducing branch banking which occurred shortly after legislation in 1909 permitted it within the state. He continued opening branches and buying banks throughout California and eventually the Bank of Italy had hundreds of branches in the state.

You may be wondering where this is all leading. Well, you are very familiar with the Bank of Italy. However, you know it as the Bank of America, the second largest bank in the U.S. The name came about after a merger and Giannini decided to use the Bank of America name rather than Bank of Italy name because the former idealized the broader mission of the new bank.

Amedeo Giannini’s legacy includes:

• The large plaza of the Bank of America Building, at California Street and Kearny, in downtown San Francisco, is named for and in honor of Giannini.
• A.P. Giannini Middle School, which opened in the Sunset District of San Francisco in 1954, is named after him. Other places and groups named after Giannini include The Giannini Foundation of Agricultural Economics and the building that houses the Department of Agricultural and Resource Economics at the University of California, Berkeley.
• The U.S. Postal Service honored Giannini’s contributions to American banking by issuing a 21¢ postage stamp bearing his portrait, in 1973.
• Time magazine named Giannini one of the “builders and titans” of the 20th century. He was the only banker named to the Time 100, a list of the most important people of that century.
• American Banker magazine recognized him as one of the five most influential bankers of the 20th Century.
• In 2004, the Italian government honored Giannini with an exhibition and ceremony in its Parliament, to mark the centennial of his founding of the Bank of Italy. The exhibition was the result of the collaboration of the Ministry of Finance, the Smithsonian Institution, Italian Professor Guido Crapanzano and Peter F. De Nicola, an American collector of Giannini memorabilia.

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