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Morning Energy Blog – October 12, 2017

Equities and the Economy:

• Stocks edge higher to post new records.
• September FOMC meeting minutes less hawkish.

All the main benchmarks closed at new record highs yesterday. The Dow rose 42 points to 22,873, the S&P 500 climbed 5 to 2,555 and the Nasdaq gained 16 finishing at 6,604. There really wasn’t anything to drive the market yesterday. It rose primarily on momentum and the “trend is your friend.” For the year the Dow is up almost 16%, the S&P 14% and the Nasdaq an amazing 23%.

The major fundamental economic event yesterday was the release of the FOMC’s September meeting minutes. And there was an interesting revelation. Prior to yesterday and based upon some Fed officials comments, especially Chairwoman Janet Yellen’s, the market widely assumed that most Fed officials were concerned about the prospects for higher inflation and there would be one more interest rate hike and it would be in December. Fed fund futures were pricing in a 90% probability of a December rate increase. However, the minutes revealed that “many Fed officials were concerned that the low inflation was not transitory.” So it appears that many Fed officials are concerned more about low, rather than high, inflation. If low inflation remains persistent then there’s no need to rush to raise interest rates. Investors still believe there’ll be a rate hike in December, but the guidance from the Fed of 3 interest rate hikes next year is all but lost. Even thoughts of two hikes are in question.

Things are quiet around the globe this morning. The Dow is down 18 points.

JP Morgan’s Jamie Dimon has predicted the imminent collapse of Bitcoin liking it to the tulip crash of 1637. Well he’s going to have to wait. Overnight Bitcoin hit a new record high of $5,231. A year ago it was trading at about $800.


• Prices log 3rd consecutive daily gain.
• OPEC raises forecast of demand.

Oil prices rose for a 3rd consecutive day with WTI adding 38¢ to $51.30 and Brent rising 33¢ closing at $56.94. OPEC released a report yesterday which was both bullish and bearish. On the bull side the cartel raised its forecast for growth in oil demand this year and next by 30,000 bpd. It sees demand increasing by 1.5 million bpd in 2017 and 1.4 million bpd in 2018. Bearishly, the report also stated that OPEC production jumped last month by 90,000 bpd. It also noted an increase of 31,000 bpd in nonOPEC countries in September, which was partly a rise in U.S. production. OPEC went on to say they expect prices to remain in the $50-$55 per barrel range next year (basis Brent).

Last night after the bell the API released its weekly crude and products report (a day late due to the holiday) and it was marginally bearish. Traders were expecting crude oil inventories to drop by 900,000 barrels but they actually increased by 3.1 million barrels. The big surprise though was on the products side. Gasoline and distillates (primarily diesel) were forecast to decline by 2.3 million barrels. They actually increased by 400,000 barrels. The API report is weighing on prices this morning with WTI down 90¢.

blog weather 10-12-2017
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices close unchanged.
• Weekly storage report today.

In the morning prices were up on a supportive cash market but the gains couldn’t be held and November gas closed basically flat to Tuesday at $2.889, down 0.2¢. Today the EIA releases its weekly storage report with traders looking for an injection of 85 Bcf. This week last year we saw an injection of 79 Bcf and the 5 year average is 87 Bcf. It will be interesting to see how Nate affected gas production. The effect of hurricanes always show up in the storage report.

The weather forecast continues to show little support for the bulls with above normal temperatures forecast through October 26th for the eastern U.S. With it being “shoulder season” this forecast doesn’t impact gas demand like it would in the middle of the summer or winter, but if it persists into November, and December, we’ll have a completely different discussion.

This morning looks like a repeat of yesterday morning with natty up 5.1¢.


10 strange facts you didn’t learn in school.

• During the Dust Bowl, people sewed clothes out of flour sacks. When flour distributors heard about this they made their bags more colorful so the subsequent clothing would be more attractive.

• Albert Einstein was offered a presidential seat. In Israel. He declined.

• The shortest war ever lasted less than an hour. The Anglo-Zanzibar War lasted 38 minutes.

• Anna Mae Dickinson may be the luckiest person ever! Over the course of her life, she survived the sinking of the Titanic and the Lusitania, the Hindenburg explosion, the bombing of Pearl Harbor, and the terrorist attacks of September 11, at which point her apartment was destroyed by the collapse of the World Trade Center.

• The largest bird ever to fly had a wingspan of about 21 feet. It loomed over our planet approximately 6 million years ago.

• Before there were alarm clocks there were “knocker-ups.” People were hired to shoot peas at workers’ windows to wake them up for their shifts.

• Before Ronald Reagan was president he was a lifeguard chalking up 77 saves.

• During World War I a monkey was awarded a medal and promoted to Corporal.

• Using sonar, scientists discovered two pyramids 6,000 feet underwater. They are made of glass and presumed larger than the Great Pyramid of Giza in Egypt.

• Soon after building started in 1173, the foundation of the Leaning Tower of Pisa settled unevenly. Construction was stopped, and was continued 100 years later. Therefore, the leaning tower was never straight.

On a logistical note, I will be out of the office tomorrow so the next Morning Energy Blog will be on Monday.

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