Return to Blog

Morning Energy Blog – March 24, 2016

Equities and the economy

Want to see what the stock market is doing? Just look at oil. Oil closed down and so did stocks. The Dow fell 80 points, ½%, to 17,502, the S&P 500 was off 13, 0.6%, at 2,037 and the more volatile Nasdaq gave up 53 points, 1.10%, at 4,769. Yesterday’s price action put the S&P back in the red for 2016 by 0.4%. I also believe we’re seeing some profit taking coming in with us coming off the explosive rally from February’s lows, overbought conditions, S&P P/E ratios back at lofty levels and a long holiday weekend upon us. It seems like the market we’re in is, per Jim Paulsen the chief market strategist at Wells Capital Management, a “bunny” market. What’s a bunny market? One that hops around. It’s not an enthusiastic bull, nor is it a scary bear. Look at the numbers. We’re where we were in November of 2014, 15 months ago, which was shortly after the Fed ended its 3rd round of QE. Global demand hasn’t really increased since the Great Recession but central banks have pumped billions and billions of currency into the market to heal the patient which has driven equity prices higher. I read a research report from a big “quant” firm stating they believe that 93% of the rise in the major U.S. equity indexes since the Great Recession was due to central bank financial engineering. That’ll get you thinking!

Turning our attention to economic data, new home sales came in as expected with 512,000 units sold in annualized terms in February and an increase from January’s upwardly revised 502,000 (originally 494,000). The number could have been higher had it not been for lack of inventory, which has been a persistent issue for both new and used home sales, to the chagrin of the millennials. Today we have weekly jobless claims and Durable Goods for February.

This morning the major equities are retreating as, guess what, oil prices continue their retreat with the Dow is down 86. Not providing any help are overseas equities with the major Asian indexes losing between 0.64% and 1.62% overnight and the European markets trading lower. Germany’s DAX is down 1.5% and France’s CAC 40 is getting whacked down 2.18%.

Oil

As mentioned above, oil prices fell yesterday with WTI closing down $1.66, 4.0%, skipping $40 and closing at $39.79. Brent lost $1.2, 3.2%, settling at $40.47. The EIA released its weekly crude and products report and it was decidedly bearish showing U.S. crude stockpiles rising 9.4 million barrels, three times analysts’ estimates! Inventories hit a new record high of 533 million barrels. Now offsetting that somewhat was gasoline inventories which fell 4.6 million barrels, double estimates. The gasoline data prevented a rout on pricing. As I’ve previously mentioned, current cheap gasoline prices are creating record demand. The refineries better get busy! Also weighing on prices was the U.S. dollar rose vs. the euro for the 4th consecutive session, but remember, the dollar hit a multi-month low last week. Hop, hop, hop.

This morning WTI continues to slide being down $1.06 heading for its biggest weekly loss in 2 months. Earlier this week both WTI and Brent had been up more than 50% from multi-year lows set in January. We could also be seeing some positon squaring ahead of the long weekend.

Blog Weather 3-24-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices took a hit yesterday with the April contract falling 6.9¢ to $1.794 marking an 18¢ loss in less than a week The $1.90ish level we hit was kind of lofty for current fundamental conditions considering demand and production. Today the EIA releases its regularly scheduled storage report and the market is expecting an injection of 18 Bcf. Note I said injection. It will be the first one of the year. Actually it will be the first injection this early in the season in at least 5 years!

The weather forecast hasn’t changed, just progressed, with the early April cold snap moving very slowly west to east with each day’s new forecast slowly across the upper Midcontinent. Don’t put those winter coats up just yet. Ahead of the storage report natty is flat to yesterday’s close.

Elsewhere

Mercedes-Benz. We’re all familiar with the luxury car brand. But did you know though that “Mercedes” is not the manufacturer. Daimler is the manufacturer. The Benz name came from Karl Benz who created his own automobile and merged with Daimler in 1926. So where did the name Mercedes come from? In 1897, Austrian businessman Emil Jellinek traveled for his home in Nice, France to purchase a car from the Daimler factory in Cannstatt, Germany. On this return to the French Riviera, his sporting Daimler Phoenix caused such a sensation that he decided to enter it into a local touring competition, under the name “Mercedes” after his nine year old daughter. Realizing the business potential for the new car, he not only placed an order for 36 more, but also secured the franchise for selling them in several countries. Daimler’s owner, Gottlieb, acquiesced to Jellinek selling the car under the name “Mercedes.”

So there you go. That Mercedes-Benz car you see is named at least in part after a 9 year old girl. Some great trivia for that next social function you attend.

Disclaimer: Although the information contained herein is from sources believed to be reliable, TFS Energy Solutions, LLC and/or any of its members, affiliates, and subsidiaries (collectively “TFS”) makes no warranty or representation that such information is correct and is not responsible for errors, omissions or misstatements of any kind. All information is provided “AS IS” and on an “AS AVAILABLE” basis and TFS disclaims all express and implied warranties related to such information and does not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of any of the information. The information contained herein, including any pricing, is for informational purposes only, can be changed at any time, should be independently evaluated, and is not a binding offer to provide electricity, natural gas and related services. The parties agree that TFS’s sole function with respect to any transaction is the introduction of the parties and that each party is responsible for evaluating the merits of the transaction and credit worthiness of the other. TFS assumes no responsibility for the performance of any transaction or the financial condition of any party. TFS accepts no liability for any direct, indirect or other consequential loss arising out of any use of the information contained herein or any inaccuracy, error or omission in any of its content. This document is the property of, and is proprietary to, TFS Energy Solutions, LLC and/or any of its members, affiliates, and subsidiaries (collectively “TFS”) and is identified as “Confidential.” Those parties to whom it is distributed shall exercise the same degree of custody and care afforded their own such information. TFS makes no claims concerning the validity of the information provided herein and will not be held liable for any use of this information. The information provided herein may be displayed and printed for your internal use only and may not reproduced, retransmitted, distributed, disseminated, sold, published, broadcast or circulated to anyone without the express written consent of TFS.