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Morning Energy Blog – May 16, 2016

Equities and the Economy

Last week ended on a sour note for us. The Dow fell 185 points, 1.05%, to end at 17,535, the S&P 500 lost 18, 0.85%, to finish at 2,047 and the Nasdaq was off 20 points, 0.41%, closing at 4,718. For the week as a whole the Dow, S&P and Nasdaq were down 1.2%, 0.5% and 0.4%, respectively. It was the third consecutive week the Dow and S&P closed lower. Pressure on the market continued to come from weak earnings from brick and mortar retailers such as Macy’s, J.C. Penny and Nordstrom’s. That being said, on Friday the Commerce Department release Retail Sales data for April and they were stunningly better than had been expected with broad sales rising 1.3% in April compared to March’s -0.4% and compared to expectations of +0.8%. Last month was the biggest increase this year. Further, ex-autos and gasoline, sales rose a stout and surprising 0.6% compared to +0.1% in March. So with retail sales so strong why are the retailers getting hammered? Because consumers are buying on the internet and not going into the store. Internet and mail-order sales leaped 2.1% in April, the largest gain in almost 2 years and are up 10% over the past 12 months. All the big box retailers are struggling on how to adapt their business models accordingly. Amazon is crushing it. They are about to overtake Macy’s as the largest seller of clothing in the U.S.

This morning is beginning very quietly with Dow futures unchanged from Friday’s close. Just a heads up here. 17,500 is an important support level for the Dow. Keep an eye on it.

Oil

Oil prices retreated some on Friday with WTI closing down 49¢ at $46.21 and Brent settled off 25¢ at $47.83. Nigerian crude production is down 30% due to militant attacks. A report out of China today noted that Chinese refinery demand is at a record high. Gasoline consumption has skyrocketed on the dramatic increase in car sales. After the close on Friday Baker Hughes released its regular weekly rig report noting the number of oil rigs working in the U.S. declined by another 10. Natural gas rigs increased by 1. The total number of rigs working is now 406 which compares to 888 at the time last year. So all that data alone is bullish but what’s goosing the market this morning, WTI up $1.26, is a report from Goldman Sachs stating they believe the oil glut of the past couple of years is over and the market is now in deficit due to global oil supply disruptions. Prices are at a new 6 month high this morning.

Blog Weather 5-16-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices fell on Friday with the June contract closing 5.9¢ settling at $2.096. Natty prices have fallen almost 13¢ in the last 3 trading days. That being said, we’re still waffling around the $2.10 level where we’ve been for weeks. This morning the bears are putting some pressure on natty with it down 6.1¢ being primarily driven by a more moderate weather forecast. Last week’s forecast for the 11-15 day time frame was showing some above normal temperatures for the eastern half of the country and that has moderated to now only being along the seaboard of the MidAtlantic and northeast states. Additionally, the 1-5 day forecast for the eastern 2/3rds of the country is downright cool which translates into no-load conditions for the U.S.

Elsewhere

I’m not sure you were aware of this but it’s been over two years since anyone has climbed to the summit of Mount Everest. It was a little before that when earthquakes and avalanches devastated Nepal and blocked off access to the world’s highest peak. Last Wednesday nine Nepali guides were the first to set foot atop the mountain since then, and were congratulated by two Americans, Adrian Ballinger and Cory Richards, who are on their way up the mountain and documenting their own high-altitude climb via Instagram. Ballinger noted that the internet connection can be very “sketchy” on the mountain (ya think?!) The nine Sherpas did the climb with the assistance of oxygen tanks while Ballinger and Richards are not using any supplemental oxygen. They expect to reach the summit in the next 3 weeks. Ballinger has already scaled Everest 6 times.

Roughly 300 foreign climbers are attempting to scale the 29,029 foot mountain this year. Think about that. You could be seen sitting on the summit and theoretically a passenger jet airline could cruise past you at eye level!

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