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Morning Energy Blog – March 30, 2017

Equities and the Economy:

• Stocks end little changed.
• Dow down 9 of last 10 sessions. Nasdaq closes up for 4th consecutive day.

Muted price action was the order of the day yesterday. That being said, the Dow, which closed 42 points lower at 20,659, posted its 9th loss in 10 sessions. At the other end of the spectrum was the Nasdaq, which gained 22 points ending at 5,898, closing higher for the 4th consecutive day. The S&P meanwhile finished up 3 points at 2,361. Barring some exogenous event, I don’t expect a lot of price movement until mid-April which is when earnings season begins. A lot of analysts are forecasting double digit growth for Q1 which would be the best since Q4 2011. Word of caution here, stock prices are like commodity futures. Everyone knows this about earnings and it’s already built into stock prices.

Let’s move on to the economic news of yesterday. The National Association of Realtors reported its index of pending home sales rose 5.5% to 112 in February. This is the highest it’s been since April 2007 and the second highest since May 2006. Per NAR’s chief economist, “Buyers came back in force last month…” [author’s note: have you regular readers noted how many times over the last few months I’ve stated when reporting economic data that multi-year highs are being posted?! The economy is most definitely doing better.!]

That was it for major economic data of importance, and I very rarely discuss this, but Federal Reserve members have been out in force giving speeches. This is common between meetings, and they are closely monitored by investors. Although the members don’t say what the Fed is going to do and always say they are speaking only their opinion, it does give investors insight on what the thinking might be at the Fed. Most members giving speeches of late are saying the economy can withstand higher interest rates. Get ready. They’re coming. At least two more this year.

This morning the bulls are in control. The Dow is up 88.

Oil

• Oil prices pop with daily gain most in two months.
• Prices close at highest level in 3 weeks.

Aided by the news that Libyan production has been cut 250,000 bpd oil prices popped yesterday with WTI closing up $1.14 at $49.51 and Brent rose $1.09 settling at $52.42. Yesterday’s price rise was the biggest daily gain in 2 months and the highest settle prices in 3 weeks. Further boosting prices was the EIA’s weekly crude and products report yesterday noting that crude inventories rose less than traders were forecasting (870,000 bbls) and gasoline stocks dropped more than expected (3.7 million bbls). With the U.S. driving season about to hit us things could get real interesting. We just may begin to see crude inventories begin to decline, which we haven’t seen in a long time. However, preventing a full blown stampede is that U.S. production continues to increase. Per yesterday’s report domestic output rose for the 5th consecutive week.

This morning the bulls are trying to take it higher with WTI up 62¢.

Weather 3-30-17
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• April Nymex contract expires strong.
• Prices near 7 week high.

The April Nymex contract expired strong up 7.9¢ yesterday at $3.175 setting the price of gas for those of you on unhedged heat rate products for your electricity supply and Nymex + basis contracts for your natural gas supply. Prices are now at 7 week highs. Record LNG and exports to Mexico, a strengthening economy and reduced U.S. production are feeding the bulls. That being said, the higher prices go, the more coal will capture the electric generation market. To use the economic term, in the electric generation market coal and natural gas are “substitutive.” Electric generation accounts for more than 90% of domestic coal use. Q1 2017 natural gas prices are $1.23/MMBtu higher than Q1 2016 and coal is indeed capturing more market share this year compared to last year. Coal production, a good surrogate for coal consumption, is up about 25% this y-o-y.

Today the EIA releases its closely watched weekly storage report and traders are expecting a withdrawal of 47 Bcf.

Elsewhere

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