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Morning Energy Blog – March 3, 2016

Equities and the Economy

U.S. stocks closed marginally higher yesterday, but in my opinion it was quite a positive performance. The reasoning is after coming off a huge up day on Tuesday stocks didn’t pull back, even after trading slightly in the red for most of the day. That’s called good price action. For the record the numbers were the Dow closed up 34 at 16,899, the S&P 500 gained 8 to 1,986 and the Nasdaq added 13 to 4,703.

There was some very important economic data released yesterday. First, the ADP Research Institute reported that private sector employers added 214,000 new jobs in February which was strong being 22-27,000 more jobs than economists were forecasting. This is a very important report because its viewed by investors as an insight into the bid daddy report tomorrow which is the Labor Department’s Employment Situation Report. Separately, the FOMC has its meeting next week and the Federal Reserve Bank always releases its Beige Book at this time. The Book addresses economic conditions in all 12 Federal Reserve districts. Overall, and despite the problems in the energy sector, the Book’s view is that the U.S. economy is moving ahead, not stagnating, and should continue to do so sufficiently to allow a round or two of interest rate hikes. Speaking of which, and due to recent data showing inflation increasing towards the Fed’s 2% target, the market is pricing in a 40% chance of an interest rate hike in June. This is pretty amazing considering that probability was next to nothing a few weeks ago.

This morning is beginning like yesterday with Dow futures down 14 points. Asian markets closed mixed and the European markets are marginally lower. Bottom line is that right now the other major global markets are taking their cues off the U.S. market.

Oil

Oil prices crept higher yesterday with WTI closing 26¢ higher settling at $34.66 and Brent up 12¢ to $36.93. The DOE reported that U.S. crude stockpiles increased by a whopping 10.4 million barrels to a record 518 million barrels The increase was more than triple estimates. Gasoline inventories were 1.5 million barrels lower which was about 1.0 million more than estimates. In aggregate, stockpiles increased a huge 11.8 million barrels with estimates at 2.5 million barrels. And not only did the price of oil not fall, it closed marginally higher. Now maybe it’s because Vladimir Putin stated yesterday that Russia’s major producers have agreed to freeze output at January levels, but this is a little weird because Russian output in February was near a record high. Maybe it was because Venezuela’s Oil Minister Del Pino said more than 25 countries will attend an upcoming oil meeting to discuss an output freeze. I don’t know but when you have a super bearish DOE report and prices don’t go down your antennae better be up!

This morning WTI is down 17¢. Chatter.

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

Natural Gas

Natural gas prices dropped back into the 60’s with the April contract closing down 6.4¢ at $1.678. Front month natural gas prices have dropped nearly 85¢ (33%) from their 2016 high at $2.495 to levels not seen since the late 1990’s. Weather forecasts after the next couple of days of normal to below normal temperatures are turning very warm which will kill any heating load and being we’re in early March, there is no A/C load, so it’s no load conditions over the next couple of weeks.

The EIA releases its weekly natural gas storage report today and the market is expecting a withdrawal of 42 Bcf. This morning natty is flat to yesterday’s close.

Elsewhere

Ever wonder why airplane windows are round. When you think about it, it’s kind of strange. Just about every other window we see is rectangle. In fact, square windows were all the rage in early airplane design. After all, square windows were ubiquitous and why change a model that’s worked in homes and cars for generations? In the 1950’s commercial jetliners rose to prominence and became capable of flying higher and faster, and that’s when bad things started happening. In 1953 three planes broke apart in midair causing tragic crashes that killed 43 people. The cause, square windows. The sharp corners of the square windows were natural weak spots for stress concentrations which were weakened further by air pressure. Curved windows, which have no focal point, distribute the stress reducing the likelihood of cracks or breaks. Circular shapes are also stronger and resist deformation and can thus survive the extreme differences in pressure between the inside and outside of the aircraft.

The next time you gaze out your window to the world at 35,000 feet I bet you notice that the window is round!

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