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Morning Energy Blog – March 2, 2016

Equities and the Economy

I’ve been telling you the 1,950 level basis the S&P 500 was resistance, and we got through that yesterday and when we did it was as if a wound up tightly spring was released and we rocketed up with U.S. equities having a great day! So how good was it? Just the best one day percentage gain for the S&P and the Dow since January 29th and the S&P having its best start since 2002. Regarding the numbers, the Dow closed up a big 349 points, 2.11%, at 16,865, the S&P 500 leaped 46, 2.37%, to 1,978 and the Nasdaq added a huge 132 points, 2.90%, ending at 4,690. The Nasdaq had its best percentage gain since August 26th. I must mention oil prices for we all know the oil/equity correlation has been high of late. Early in the session stocks were higher even though oil prices were in the red and then in the afternoon oil prices jumped it was fuel on the equity fire (pun definitely intended) and stock prices soared.

It was fundamental economic data that broke us through resistance yesterday. The Institute of Supply Management reported that activity in the manufacturing sector rose to 49.5 in February from 48.2 in January and not only was this better than Wall Street was expecting, it was the best level since September/October. Additionally, the Commerce Department reported that construction spending surged 1.5% in January, much, much higher than expectations, from December to an annualized rate of $1.14 trillion which is 10.4% better y-o-y and its highest level in 8 years. Yesterday’s data boosted expectations the U.S economy is gaining steam after slowing in the fourth quarter. By the way, whereas in Q4 the market was betting that if, and that was a big if, the Fed would raise interest rates in 2016 it would be late in 2016. That bet is now 40% that the next rate hike will be in June. We’ll know more come Friday when the Labor Department releases its extremely closely watched employment situation report for February.

So from an investing perspective the fundamental data alone was bullish and when we soundly broke the technical resistance it was risk on!

This morning stocks are pulling back a bit with the Dow is down 50 but this is not to be unexpected after such a big move up yesterday. Total chatter. By the way, the 1,950 S&P level now becomes support at which investors will be adding to positions. I’m not going to even comment on the Asian and European markets for they’re all taking their cues from yesterday’s U.S. price action and playing catch-up.

Oil

Oil prices continue to grind higher with WTI closing 65¢ higher at $34.40 and Brent adding somewhat less, 24¢ settling at $36.81. WTI prices have rebounded about 32% in a month. I’m sure producers are pleased about that, but they’re still not happy about the absolute price level. Interestingly, it is impressive that oil continues to inch higher being that the U.S. dollar continues to strengthen. Yesterday was the 3rd consecutive day the dollar gained vs. the euro.

This morning WTI is down 36¢ on API’s weekly report yesterday afternoon noting a much larger than expected build in crude inventories last week. The organization stated crude inventories rose 9.9 million barrels which was three times more than the 5 year average. When you add in product inventories (primarily gasoline and diesel) inventories rose ten times the 5 year average. Limiting the downside was news that Russia’s oil minister has amassed a critical mass of oil producing countries to agree on capping oil production with a meeting to be held later this month to discuss the output freeze.

It will be interesting to see if the oil market shrugs off this bearish fundamental data. A market that does not go down on bearish news in not bearish. The DOE crude and products weekly report comes out today.

Blog Weather 3-2-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

The April natural gas contract added 3.1¢ yesterday closing at $1.742, skimming along 17 year lows. More important to me is that the calendar strips were up a nickel for a second day marking a 10¢ gain over two days. Folks, I’ve been in the energy markets for 35 years a 10¢ move in a calendar strip 4 years from now (2020) is quite noteworthy. My antennae are up.

Winter is definitely over. Just look at the weather forecast. You folks in the upper Midwest will be getting buds on those trees within a few weeks! Cincinnati, you will be in the mid 70’s next week! Same for you Philadelphians! Time to get outside, get some vitamin D and knock that paste off your skin! This morning natty is down 3.1¢.

It’s now time to begin focusing on the summer, it’s forecast and the power burn for air conditioning. By the way, this past winter there’s been a record burn of natural gas to generate electricity.

Elsewhere

Kudos to Brad Williams. Brad owns a Chick-fil-A in Suwanee, GA and is challenging customers to spend time with family and friends instead of scrolling through their cell phones while dining at his restaurants. He’s created what he calls a “cell phone coop,” which he’s placed at every table. The “coop” is essentially a small box with chicken wire printed on it (it looks like a to-go box for Chinese food). Diners are to put their cell phones in the “coop” while eating. If a family can eat their entire meal without touching their cell phones they get a free ice cream cone. The obvious intent is for families to engage more while eating. More than 150 locally owned Chick-fil-A restaurants across the U.S. offering guests the opportunity to take the “cell phone coop:” challenge. This single father of 15 and 17 year old daughters would love to see a form of this in every restaurant!

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