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Morning Energy Blog – May 23, 2016

Equities and the economy

U.S. stocks moved moderately higher to close out last week. The Dow closed 66 points higher, 0.38%, at 17,501, the S&P 500 added 12, 0.60%, to 2,052 and the Nasdaq got a nice pop rising 57 points, 1.21%, finishing at 4,770. The Dow closed down 0.2% for the week, its 4th consecutive weekly lower close but is still up marginally for the year, 0.44%. The S&P snapped a streak of 3 weeks of consecutive losses gaining 0.28% for the week. It is up 0.41% for the year. The Nasdaq rose 1.1% last week snapping 4 weeks of losses and is down 4.75% for the year. Ok, the glass is half full side. The S&P has rebounded approximately 13% from its February lows.

Turning to the economic news on Friday, The National Association of Realtors reported existing home sales in April rose to 5.45 million annualized units compared to 5.36 million in March and slightly above Wall Street’s expectation. April’s figure now has U.S. sales having held above a very solid 5.35 million annualized units for 4 or the past 5 months which is quite impressive. As I’ve mentioned numerous times, the housing industry has been the backbone of the recovery from the Great Recession.

While you slept the Asian markets closed mixed but there were no big moves. This morning the Dow is up 26 points which is a positive because all the major bourses across The Pond are trading lower.

Oil

Oil prices slipped marginally Friday with WTI falling 41¢ at $47.75 while Brent was down just a tad, 9¢, at $48.72. Oil is definitely feeling the pressure of the stronger dollar which finished higher on Friday for the 4th straight day and for the 3rd consecutive week. Oil prices have retreated a bit from their high last week of almost $49, but the operative term is “a bit.” Although there’s a ton of oil around, Goldman Sachs shocked that market last week stating the market was currently in a deficit due to various outages across the globe. The Canadian wildfires remain out of control. Reports are there are 18 individual fires burning covering almost 1.3 million acres! That gives you an idea how bad it is there! The winds continue to blow from the west and the fire has crossed the border into Saskatchewan. Fortunately, it appears progress is being made with wetter, better weather arriving.

In southern Nigeria, which is very far away from the capital and where just about all the oil is produced, two terrorists groups are fighting for control. For many years there was the MEND (Movement for the Emancipation of the Niger Delta). Now a new group has surfaced competing for power, the Niger Delta Avengers (NDA). They are advocating for the independence of some of the southern states in the country. The latter group sounds like something Marvel comics would create. Unfortunately, this isn’t entertaining. The activities of these groups, the NDA of late, has forced the shut-in of a material amount of Nigerian crude.

Oil prices may have rebounded of late, but the rig count hasn’t yet. Baker Hughes reported Friday the U.S. rig count dropped 2 last week, which is the least its dropped in many, many weeks. I believe the rig count is going to stabilize at current levels and rebound marginally. To get the rig count up materially we’re going to need WTI prices over $60.

The bears came out this morning hitting it as much as 90¢ down but WTI has clawed back to 36¢ down.

Blog Weather 5-23-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices crept up on Friday with natty closing 2.3¢ higher at $2.062. Although storage fields are very full for this time of year, production is down, demand is growing from four different sectors and we’re coming into the air conditioning season. If we get normal temperatures this summer I’m absolutely convinced we’ll see a record amount of natural gas burned for power generation.

This morning natty is trying to push a little higher being up 3.9¢ primarily driven by a marginally warmer forecast for the upper Midwest and northeast for the 11-15 day time frame. That being said, we continue to broadly trade around that $2.10 level. Looking ahead, the June Nymex contract closes this Thursday.

Elsewhere

It’s spring which means that baseball season is underway! Do you know how long it’s been since the Chicago Cubs won a World Series? 108 years! Specifically, 1908. Putting this somewhat in perspective, the Ottoman Empire was still around! In fact, it was around for another 14 years after the Cubs won that World Series. The Ottoman Empire was founded in the 13th century. The last sultan was Mehmed VI whose reign ended in 1922 when the sultanate was abolished and the Turkish government took governing control over the new republic. Maybe there is something to the curse of the billy goat!

On a logistical note, the Blog will not be published the next couple of days for I will be traveling on business.

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