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Morning Energy Blog – May 17, 2016

Equities and the economy

It started very, very quietly but ended strong! At this time yesterday Dow futures were flat to Friday’s close however as the day wore on they got stronger and stronger and when the final bell rang the Dow was up a nice 175 points, an even 1%, at 17,710, the S&P 500 added a healthy 20 points, 0.98%, to close at 2,067 and the Nasdaq finished at 4,775, up 1.22%, 58 points. The indexes were driven up by higher oil prices which brought in buyers of energy sector stocks as well as Apple which closed up 3.7% after Warren Buffet’s Berkshire Hathaway reported it owned about $1 billion of the stock. You’d be amazed at how many investors, and how much money, ride the coattails of the Oracle of Omaha. I also believe yesterday’s move was a delayed reaction to Friday’s very positive Retail Sales report. The S&P is up 1% for the year and 14% from its February low.

Regarding economic news, the National Association of Homebuilders reported that its NAHB/Wells Fargo index of builder sentiment was 58 in May, unchanged from April. The most important thing here is that it’s well above 50 which indicates growth. Translation: builders are confident the market will continue to strengthen. That was it for major reports.

Overnight the Asian markets closed flat to higher following yesterday’s action on Wall Street and the major European indexes are waffling around unchanged. Locally traders are taking some profits on yesterday’s move with the Dow down 97 points, but as I often say “Let’s see how they close.” Remember, yesterday at this time we were trading flat to Friday’s close.

I came across a very interesting bit of research. According to the Federal Reserve Bank of Atlanta, the median worker is enjoying their highest wage growth since 2009. The metric showed that the median employee saw a rise of 3.4% y-o-y as of April setting a new record for this expansion. There are a few key pieces of data the Fed looks at for making interest rate decisions, and wage growth is one of them with its implications on inflation. Obviously this is data is supportive of the argument to raise interest rates. By the way, the next FOMC meeting is June 16-17.

Oil

Oil prices popped yesterday with WTI rising $1.51, 3.3%, closing at $47.72 and Brent climbing $1,14, 2.4%, settling at $48.97. Both are 7 month highs. The price rise was all the more impressive considering the U.S. dollar is notching 2 week highs vs. other currencies. While concerns over supply disruptions in Nigeria, Libya and Canada are and have been supportive of prices, it was Goldman Sachs report yesterday that really got the bulls stampeding. The report stated that with the aforementioned supply disruptions the market is in deficit after 2 years of glut. I’ve seen Goldman proven both right and wrong but there’s no doubt investors and traders buy and sell on Goldman’s reports. I wonder if they put a long position on prior to releasing the report???

By the way, you need to keep an eye on Venezuela. The country is economically and politically melting down. There have been shortages of many goods for months and due to drought and mismanagement there are rolling electricity blackouts every day which is negatively affecting oil production, Venezuela’s prime source of income. And don’t forget, crude oil was trading $80 a year and a half ago. Now, about half of that.

This morning WTI is sedate up 40¢.

With all this talk about the supply/demand balance API’s crude and products report this evening will be very interesting.

Blog Weather 5-17-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Cooler weather forecasts brought the bears out of their caves yesterday pushing down natural gas 6.7¢ with it settling at $2.029, a 7% slide over the last 3 days and close to a 3 week low. The opposite is happening today. While the next 5 days will be very, very mild for the eastern 2/3rds of the country, today’s weather forecast is much warmer than yesterday’s for the 6-15 day period which is bringing in some buyers with natty up 3.2¢. The other thing, and my clients know the specifics, I’m concerned about supply growth. That being said, storage levels are very, very high due to the record warm winter. However, traders know this excess will be burned off this winter, which is why the June 2017 price is 76.6¢ higher than next month’s price!

Elsewhere

Here’s an interesting fact to bring up, at the appropriate time, at your next social function. Did you know that you cannot taste food unless it’s mixed with saliva? For instance, if salt is placed on a dry tongue, the taste buds will not be able to identify it. As soon as saliva is added , the salt dissolves and the taste sensation takes place. There are four basic tastes plus umami. The salt and sweet taste buds are at the tip of the tongue, bitter at the base and sour along the sides. You have about 10,000 taste buds. Umami is sensed along the center part of the tongue. The tongue is the strongest muscle in the body and averages four inches in length.

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