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Morning Energy Blog – May 6, 2016

Equities and the economy

Although there was some intraday volatility U.S. equities did what I expected and mentioned in my Blog yesterday which was that stocks would close little changed from Wednesday as investors waited for today’s Labor Department employment report. The Dow closed up 9 at 17,661, the S&P 500 closed flat to Wednesday at 2,051 and the Nasdaq closed down 11 at 2,301. Not much more to say so let’s move on to the fundamental news of the day. The Labor Department released its regular weekly jobless claims stating initial claims rose a surprisingly large 17,000 to 274,000 last week. Economists were looking for a number closer to 262,000. That being said, unless claims get above 280,000 everything is still OK. Bloomberg reported yesterday that its Consumer Comfort Index for the week of May 1 fell to 42.0 down from the prior reading of 43.4 and down from around 44 at the start of January 2016. Just like stocks this year, this index really hasn’t gone anywhere since the beginning of the year.

Well this morning the Labor Department released its employment for April, and it was disappointing, but there’s a caveat. The U.S. economy added the fewest jobs in 7 months last month with nonfarm payrolls increasing by only 160,000. This is the smallest gain since September and below Q1’s average of 200,000. Additionally, February’s and March’s employment number was reduced 19,000. Economists were forecasting payrolls would be rising by 202,000. The unemployment rate held at 5.0%, unchanged with less Americans looking for jobs. Here’s the caveat I mentioned. The market was kind of looking for a weak number. On Wednesday ADP released its report which was pretty “weak” so the market was somewhat primed for a not-so great number. This may be more of the “bad news, good news” thing meaning that with this data the Fed may be slower to raise interest rates, which is good for equities.

The Dow is down 26 but I think it has less to do with the jobs report and more to do with the fact the Asian markets all closed lower (the Hang Seng and Shanghai considerably) and the European markets are all painting red right now.

Oil

It was a volatile day for oil yesterday. Although WTI closed up only 54¢ at $44.32, it was up as much as $2.29 intraday. Brent’s price action was the same but it ended up only 39¢ at $45.01. (You may wonder why I always quote Brent. It’s because Brent has become the bellwether price of oil for most of the world). Yesterday’s volatility was primarily caused by events surrounding the massive, and dangerous, wildfire in Alberta near Canada’s oil sands. About 500,000 bpd have been shut in and 88,000 people have been evacuated. 1,600 buildings have been burnt down. Although oil companies have shut down production, the fire remains miles to the south of the tar sands and as long as it remains so any damage will be minimal and production can be returned to normal fairly quickly.

The term structures have moved bullishly as a result of the wildfire, which is not to be unexpected. Supplies for a few weeks may be a little “tight” but as long as events surrounding the wildfire to not get worse, it shouldn’t affect supplies 2 or 3 months into the future.

WTI is up 32¢. Chatter.

Blog Weather 5-6-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Services LLC

Natural Gas

The June Nymex contract fell 6.5¢ yesterday closing at $2.076. Of note, though, and this is what I pay close attention to the calendar strips for it affects your electricity and natural gas budgets, the calendar 2017 and forward strips were flat to up a tad. All those strips are now over $3.00. Traders know the current over supply imbalance due primarily to a record warm winter won’t last beyond the fall. Lower rig count. Declining production.

Yesterday the EIA released its weekly storage report noting 68 Bcf was injected last week. The market was expecting 64 Bcf, so the actual came in pretty much at expectations. U.S. storage levels are currently 861 Bcf, 49%, greater than this time last year and 836 Bcf, 48%, above the 5 year average. Hence, the large current price discount to the future.

Elsewhere

So why is it impossible to tickle yourself? The answer lies at the back of your brain, in the cerebellum. The cerebellum is involved with monitoring movement. Studies at University College London have shown that the cerebellum can predict sensations when your movement causes them but not when someone else does. When you try to tickle yourself, the cerebellum predicts the sensation and this prediction is used to cancel the response of other brain areas to the tickle.

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