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Morning Energy Blog – May 9, 2016

Equities and the economy

U.S. stocks rebounded from early losses on Friday to close higher with the Dow ending up 80 points, 0.45%, at 17,741, the S&P 500 adding 7, 0.32%, to 2,057 and the Nasdaq closing at 4,736, up 19, 0.4%. The major event Friday was the Labor Department jobs report which showed the U.S. added 160,000 new jobs in April. Now at first blush this is was disappointing for economists were forecasting 203,000 new jobs. Also, the labor participation rate fell for the first time in seven months as more people dropped out of the labor force. However, average hourly earnings, a key inflation factor, were a bright spot rising 8¢ last month. That took the y-o-y increase to 2.5% from March’s 2.3%. That’s still below the 3.0% advance economists say is needed for inflation to rise to the Fed’s 2.0% target. With the unemployment rate down at 5%, unchanged from March, Fed policymakers are expecting a pullback in job creation as the labor market tightens and job gains of around 100,000 will still be viewed as sufficient to the unemployment rate under pressure. So this leads us to THE question. Will the new data increase or decrease the propensity for the Fed to raise interest rates? This is a tough one. On the one hand the jobs report gives the Fed reason not to raise rates in June. However, if they don’t raise rates in June the presidential election is right around the corner which will complicate their decision making. It’s very possible that if they don’t raise rates in June the next time may be in December, due to the election, and that may be only to save face being they’ve stated they will raise rates this year, possibly more than once, and they haven’t raised rates even once so far this year. The last rate increase was December.

The Asian markets closed mixed with the Nikkei and Hang Sang chalking up small gains but China’s Shanghai got whacked posting a 2.79% loss on lousy trade numbers. Exports fell 1.8% from a year earlier and imports fell 10.9% y-o-y marking the 18th successive fall. The message: shaky demand both within and outside of the country. The European bourses, while off their highs, are chalking up nice gains with France’s CAC 40 up 0.83% and Germany’s DAX up 1.35%. Locally, U.S. investors are taking much more or a cautious approach with the Dow up 17. Chatter.

Oil

Oil prices squeaked out a gain on Friday with WTI closing up 34¢ at $44.66 and Brent adding 36¢ settling at $45.37. It wasn’t a good week for producers though for the price of the slick stuff fell 7% last week, however, that’s the first weekly fall in 5 weeks. Baker Hughes released its weekly rig count report and that despite oil prices rebounding somewhat, the rig count continues to fall. Last week the oil rig count declined by 4 and natural gas by 1 to a total of 425 rigs, 479 lower than this time last year and the lowest level since 1949 when Baker Hughes started keeping this data. Y-o-y the oil rig count is down 51% and the natural gas rig count is down 61%. The weekly average WTI price is down 23% from last year at this time and the natural gas spot price is down 26%.

The lower rig count is translating into lower production. The EIA stated U.S. crude production is down 401,000 bpd this year and down 800,000 bpd form mid-2015. This morning WTI is off 68¢.

Blog Weather 5-9-16
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rose 2.5¢ on Friday closing at $2.101. Of note folks is the spread between the front month, June, and the calendar 2017 strip, which begins in only 7 months. That difference as of Friday is $88.6¢ folks. That’s a big difference. The reason for that large spread is that traders believe the oversupply we’re currently experiencing, primarily due to the record warm winter we just had, will not last past this coming winter. And remember, U.S. natural gas production is down about 1-2 Bcf/d from its February highs. This morning natty is just chattering along being down 0.6¢.

Elsewhere

It’s hard to believe in this era of lane-departure systems, radar-guided automatic braking and infra-sensors, but once upon a time, safety in cars was more of an afterthought. One car company though has built its reputation on safety, Volvo. Safety was so important to Volvo that the car company gave away the most important safety device ever invented, the three point safety belt. Prior to the three point belt the norm was a two point waist belt (I remember!), and in crashes it often did more harm than good (remember the metal dashboards!). The three point belt was invented by Volvo engineer Nils Bohlin in 1959. He was a former Saab aviation engineer who had worked on ejector seats. He invented a seat belt that fit over the driver’s torso as well as his or her lap. The design was first launched in the Nordic market in 1959 on the Volvo Amazon and Volvo PV544. It made its way to the U.S. in 1963. It was a revolutionary invention, and one that probably could have netted Volvo a fortune on patents alone. But in a magnanimous gesture, they gave the patent away because they decided it was too important to keep to themselves; that it had more value as a free lifesaving tool than something to profit on.

Bohlin continued to work for Volvo until 1985 pushing for continued safety improvements like side impact protection and rear seat belts. He died in 2002 a few years after receiving a gold medal from the Royal Swedish Academy of Engineering Science and getting inducted into the Automotive Hall of Fame. Four years ago Volvo said that more than a million people worldwide have been saved by his seatbelt design.

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