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Morning Energy Blog – March 30, 2016

Equities and the economy

Jump’n Janet flash hit the gas, gas, gas! As I mentioned in yesterday’s blog, the big event of the day was Janet Yellen speaking before the Economics Club of New York and her message was clear: monetary expansion is on the table, which means raising interest rates is off, at least for the near future. She made it clear that negative interest rates are not under consideration, but she stated the Fed is concerned about global economic conditions and has any number of other monetary policy tools available to assure economic strength and continued employment growth here in the U.S. She also noted the dollar was too strong and we all know the easiest way to weaken the dollar is easing monetary policy. The major indexes were trading in the red all day prior to her speech which began at noon eastern time and then at 12:19 PM stocks skyrocketed and held their gains and at the final bell the Dow was up 98 points, 0.56%, to 17,633, the S&P 500 closed up 18, 0.88%, at 2,055 and the Nasdaq popped 80, 1.67%, finishing at 4,847. All three indexes closed at their highest levels of the year. After 7 years since the Great Recession there has been one fundamental way to trade and that is to watch what the Fed does. “Don’t fight the Fed!” QE means buy! By the way, the dollar fell hard against every major currency I’m sure to the chagrin of the ECB and especially the Bank of Japan.

Janet dominated the news yesterday but there was a bit of fundamental economic news and that was Case-Shiller’s Housing Price Index which held steady in January at 182.6 from February. Home prices rose 0.8% m-on-m and 5.75% y-on-y.

This morning ADP released its very closely watched private employers payrolls report with the headline being 200,000 jobs were added in March which was marginally above economists’ expectations. February’s number was revised down by 9,000 to 205,000. I’ll discuss this more in tomorrow’s Blog. Investors use the ADP report as a barometer for the Labor Department’s Employment Situation report which comes out Friday.

This morning the party rolls on with Dow futures up 106 points as we continue to climb the proverbial “wall of worry!” Whoo-hoo!

Oil

Oil prices got whacked pretty good yesterday with WTI losing $1.11, 2.8%, closing at $38.28 and Brent down $1.13, also 2.8%, settling at $39.14. Word hit the street yesterday that Saudi Arabia and Kuwait would resume production from the jointly owned Khafji field in the order of 300,000 bpd. This is quite interesting to me because isn’t OPEC supposed to be capping production at January levels?! Remember too, Brent long positions held by specs is at a record high which makes Brent prices, and hence WTI prices, vulnerable. That being said, it is of note that oil prices fell even with the U.S. dollar materially weaker.

This morning WTI is getting a boost, up $1.06, from the API’s report yesterday afternoon that although crude inventories rose, 2.6 million barrels, it was below forecasts of 3.5 million barrels with stockpiles at Cushing, OK decreasing by 300,000 barrels which was 200,000 greater than forecast.

Blog Weather 3-30-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

The April Nymex natural gas contract expired yesterday up 5.5¢ at $1.903. Prices have been impressive rallying 40¢, 25%, in less than a month. It may be a shoulder month and we may have exited the winter with a record amount of gas in storage but traders are looking beyond April (duh, it is called a future!) with demand increasing in various sectors not the least being the forecast for a warmer than normal summer. This morning the May contract begins its first day as the prompt month and is up 1.6¢ from yesterday’s close. The weather forecast is pretty much a moot point but even with the low HDD/CDD demand there’s a lot of nuclear plants down for maintenance supporting the cash market.

Elsewhere

I wish I had gone long this commodity because if I had I’d be making a lot of money. I’m talking about bomb sniffing dogs. They’re in very short supply. The global war on terror’s ever-increasing reliance on man’s best friend is presenting a new problem – a deficit of high-quality bomb dogs. Since the 9/11 attacks, the number of canines deployed to protect the nation’s busiest airports, train stations and other transit centers has surged 400%! This year more than $120 million is budgeted for the TSA to position nearly a thousand bomb-sniffing dogs and their handlers at transit hubs. But according to a federal audit, the effort is short 210 detection teams because there aren’t enough dogs. The situation is at the point where for the first time since 9/11 the agency is considering purchasing privately trained dogs. The market for Labradors, Belgian malinois, vizslas and other breeds that make good explosives detectors is so competitive right now that some trainers won’t reveal their suppliers. In fact, the demand for high-quality Labradors in the U.S. is so high that suppliers even outside the U.S. are being considered. Eastern Europe in particular is in the discussion because it’s been a popular pipeline for decades because dogs there are historically bred for police and other detection work. We all know that canines have super powered snouts, their sense of smell is 40 times greater than a human’s, but a bomb dog must also be sociable, disciplined and physically resilient. For dogs abroad the TSA said it partners with the Department of Defense and spends about $5,000 per dog but others have stated the price can climb to more than $10,000 if the animal has little or no training. The demand for these dogs includes more than just airport terminals. A year ago, bomb dogs were hired to patrol the Mall of America after an al-Qaida affiliate called for attacks on the mammoth Minneapolis shopping center. And terror plots in Boston and San Bernardino have police departments considering employing more than just drug dogs. So that that hound lying next to you might just be more valuable than you thought!

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