Good morning. I’ve been travelling on business the last three days hence the last Morning Energy Blog was last Friday reflecting Thursday’s market action. Let’s see what’s transpired since that time. Last Thursday the Dow, S&P 500 and Nasdaq closed at 17,555, 2,031 and 4,638, respectively. Yesterday the Dow closed at 17,612, the S&P at 2,038 and the Nasdaq at 4,675. So the good news is that all 3 major bourses are higher, albeit only marginally. In fact, you could categorize the Dow and S&P’s gain as “chatter.” The Nasdaq’s gain of 0.8% is more material. That being said and me being the optimist I am, the markets aren’t down from last week. And let’s not forget that prior to yesterday the Dow and S&P had eked out record closes in 5 consecutive sessions. For the year the S&P is up about 10%. I’ll take that every day.

There are multiple indicators (GDP, jobs growth, earnings growth, PE ratios, interest rates and inflation) that give reason for the market to go higher. But there are two very important indicators flashing red lights to me. The first is U.S. investor sentiment. Investor optimism is now at the highest level this year while bearish sentiment is the lowest in 9 years. As many of you know, I’ve been in the energy markets for 35 years with many of them spent speculatively trading energy and I don’t care if it’s a commodity or an equity, when the boat is heavily listing one way a correction is due. John Q. Public is a mullet. A sheep. A follower. He is the last on a bull train and always gets out at the bottom. When markets get like this, in this case over optimistic, you run out of buyers. The other indicator is the S&P has closed above its 5 day average for the 19th straight time yesterday. When the index has traded above that level for this long it’s indicating a modest pullback is coming. Bottom line is that we need to buckle up and get ready for some volatility. There’s a saying in trading. Markets take the stairs higher and the elevator down.

This morning the European markets have recovered from when I first sat down and are now trading mixed. On this side of the pond we’re faring better much better at this minute with the Dow up 61 points. The bulls like M&A activity and this morning Berkshire Hathaway, that would be the Oracle from Omaha’s company, announced they were buying Duracell from P&G.

Last Thursday WTI closed at $77.91 and yesterday it closed at close to the same level, $77.18, down 76¢ for the day. Last Thursday Brent ended at $82.86 and yesterday it settled at $80.38, down $1.29. So we can see it’s Brent that has been getting hit this week. Note the Brent/WTI spread is “in” to $3.20. Brent is now trading near a 4 year low as U.S. production rises and Saudi Arabia is not indicating they are willing to cut production and give up market share. Yesterday OPEC released a report stating that demand for OPEC oil was expected to drop by about a million bpd next year because of the U.S. shale boom. OPEC meets on our Thanksgiving Day and I guarantee you it’s going to be a very lively session. I can visualize it right now. Venezuela will be yelling that OPEC must cut production all the while they have no intention of doing so and will produce every barrel they can.

This morning oil prices continue to slide with WTI down $1.27 on speculation that OPEC, or more specifically Saudi Arabia, will not cut production. Adding fuel to the bear fire (pun most definitely intended!) China released a report this morning stating growth slowed in the 3rd quarter to its weakest level since the global financial crisis began. I still find it quite interesting that we’re struggling to realize 3% growth here in the U.S. and 7.0% growth in China is bearish.

Of the three topics I discuss daily, natural gas has had the biggest move since last Thursday. On that day it closed at $4.404. Yesterday it closed at $4.185, down 6.2¢ on the day and down a very material 21.9¢, 5%, over the 4 trading days. Of the topics I cover natural gas is the most volatile so this doesn’t really surprise me. By the way, electricity, which is much less transparent than natural gas, is way more volatile than natural gas. The weather forecast drove prices up almost $1.00 over 8 trading sessions, 38%, hitting a high a week ago today. Since that time the bears have come out of their caves selling into it. Although temperatures are currently waaaay below normal extending through all of next week, the 11-15 day forecast shows the U.S. returning to more normal temperatures. Hurting the bulls is that natural gas production continues to increase and particularly this month with new pipeline capacity coming on line in the Marcellus bringing previously shut in production, i.e. new incremental production, to the market.

Courtesy of MDA Information Systems LLC

This morning natty continues to erode being down 8.3¢. That being said, we’re still way higher than the $3.54 low we hit October 27th, the day before the first cold weather forecast. By the way, for those of you looking for the EIA’s natural gas storage report data, you’re going to have to wait one more day. The report is delayed one day due to the Veteran’s Day holiday. The market is looking for an injection of 48 Bcf.

As we all know, we here in the U.S. live in a very litigious society. Over 15 million lawsuits are filed in state courts annually. That works out to one new law suit every 2 seconds or one lawsuit for every 12 adults in America. Overwhelming! Well think about this. During my travels this week I was listening to NPR which did a segment on the legal system in Brazil. Get this. There’s one law suit for every 2 people in the country! As you can imagine, the legal system is tremendously overloaded with it very common for common lawsuits to take 10 years to be resolved. I guess the term “litigious society” is relative. Have a good day.