Good morning. As you regular readers know, I usually begin this report with equities for equities often influence oil prices (natural gas operates in its own little world!) but today oil gets the lead spot. Why? Because yesterday both WTI and Brent hit 4 year lows. WTI closed down a whopping $2.97, 3.9%, at $74.21 and Brent ended at $77.92, off $2.46, 3.1%. WTI was slipping all day but in the last hour of trading the bottom fell out and it lost $1.25. Ample global supplies exist and Mr. Ali al-Naimi, Saudi Arabia’s oil minister, is giving no signal the Kingdom is prepared to cut production. He was quoted yesterday saying “We don’t not set the oil price. The market sets the price.” He went on to say this policy has been constant and has not changed. The market is interpreting his comments as “blind neglect.”

The bulls are certainly not being helped with new reports out of China the economy there lost momentum in October with factory growth dipping and investment growth hitting a near 13 year low reinforcing expectations of a slower increase in fuel demand. On the supply side, the EIA reported that U.S. oil production vaulted past 9 million bpd for the first time since 1986. Domestic production has soared roughly 60% in just the last 5 years with the exploitation of hydraulic fracturing and horizontal drilling. The U.S., currently the world 3rd largest producer, is quickly catching number 2 producer, Saudi Arabia. Russia is number 1. Things are so bad for the bulls that even a surprisingly bullish DOE crude and products inventory report didn’t move the price needle.

OPEC meets in Vienna on November 27th (when I’ll be watching the Texas A&M/ LSU matchup!) vociferously debating how to deal with a 30% fall in oil prices over the last 5 months. This morning WTI is marginally correcting being up 87¢.

U.S equities closed up yesterday with the Dow climbing 41 points to 17,653, the S&P 500 inched 1 higher to 2,039 and the Nasdaq added 5 to 4,680. On an intraday basis the Dow and S&P hit new highs. As I mentioned earlier, data from Beijing showed below forecast factory output and investment growth at a near 13 year low. This is the weakest growth for the world’s second largest economy in almost 24 years. That was not enough to weigh down stocks though for the lower price of oil was viewed by the market as essentially a tax cut for the average citizen giving them more disposable income. Naturally with the low prices the energy sector, which is down 26% while the S&P is up 12%, is weighing on the performance of the overall indexes. Offsetting the weight of the yoke of the energy sector, yesterday Wal-Mart, the world’s largest retailer, announced sales results better than expectations pushing its stock price higher and supporting the indexes.

This morning Asia closed mixed with Japan’s Nikkei 225 hitting a new 7 year high still riding the rocket of Prime Minister Shinzo Abe’s and the Bank of Japan’s QE program. European stocks are trading mixed on either side of unchanged as are U.S equities with the Dow down 9 points.

Natural gas just got knackered yesterday with the December contract falling 20.8¢, 5%, settling once again below $4.00 at $3.977. The weather, or more specifically, the weather forecast, drove the price up about $1.00 over 8 trading sessions and the same is pushing it down. Yes it’s really, really cold right now with temperatures waaaay below normal, over 15 degrees for most of the country east of the Rockies, but as you can see in the forecast, the 11-15 day time frame is warming up nicely which is a continuation of the trend I’ve seen this week. The eastern seaboard will actually see above normal temperatures.

Courtesy of MDA Information Systems, LLC

Today the EIA reports on what natural gas storage operators did last week which is a day later than normal due to the Veteran’s Day holiday. The market is expecting an injection of 40 Bcf which compares to an injection last year of 22 Bcf and the 5 year average of 16 Bcf. After the pummeling natty took yesterday traders are squaring some positions, covering some shorts, ahead of the report with the December contract up 5.3¢ as I write.

The Keystone Pipeline is back in the limelight once again now that the Republicans control both the House of Representatives and the Senate. The House is supposed to vote today with the Senate to vote next week. If it passes President Obama must sign it. But what if it passes and is signed and nobody comes? With WTI prices now 28% lower than last June the primary pipeline customers, the Canadian tar sands producers, may not be able to make the economics work. It’s estimated that it cost between $85 and $110/bb to produce this oil. Now this is the cost of new production meaning that existing wells will continue to produce. Helping the economics is that WTI futures prices are still attractive at the $85 to $90 per barrel level. How ironic though that oil prices for the past few years have been over $80/bbl making the pipeline economics a slam dunk and now when the vote comes up the economics are shaky. That being said, if the pipeline is approved I guarantee you TransCanada, the owner, will build it. They’ve waited a very, very long time for it to happen. Have a good weekend.