Equities and the Economy:
• Upbeat economic data.
• Nasdaq sets record high.
Positive economic data pushed stocks higher on Friday. The Labor Department reported that the consumer price index rose 0.5% in September and 2.2% on an annual basis. This is the biggest increase in 8 months as hurricanes Harvey and Irma boosted demand. Core CPI, which excludes the more volatile food and energy prices, rose 0.1% on the month and 1.7% for 12 months. And remains below the Fed’s 2% target making investors question how many interest rate increases there really will be next year, although most are betting on an increase this December. The University of Michigan released its closely monitored consumer confidence index noting it rose from 95.1 in September to 101.1 in October. This was way better than Wall Street’s expectations and is the highest level since January 2004.
The data showing contained inflation and positive consumer confidence brought in some buying of equities with the Dow posting a 31 point gain to end at 22,872, the S&P 500 added 2 points to 2,553 and the Nasdaq rose 14 points to 6,606, a new record high, it’s 57th this year. For the week the Dow was up 0.4%, the S&P 0.2% and the Nasdaq 0.2%. The Dow and S&P have posted 5 consecutive weekly gains and the Nasdaq has logged 3 straight weeks of gains.
Yesterday at an international banking seminar Fed Chairperson Jane Yellen said the economy remains strong and that “the ongoing strength of the recovery will warrant gradual increases” in interest rates. Although the minutes of the September FOMC meeting noted broad debate about recent soft inflation, it’s apparent that Janet Yellen wants rate increases.
This morning the Dow is up 19 on higher European stock prices.
• Prices end at 2 week highs.
• President Trump does not certify Iran complying with nuclear deal.
Geopolitical events are creating uncertainty in the oil market which is putting a bid into prices. On Friday WTI logged an 85¢ gain closing at $51.45 and Brent rose 92¢ settling at $57.17 and at 2 weeks highs. WTI was up more than 4% for the week. Prices got a boost from 1) a bullish report from China noting imports rose roughly 1 million bpd, 2) President Trump’s refusal to certify that Iran is complying with the nuclear deal. Congress now has 60 days to decide whether to impose sanctions. Under previous sanctions around 1 million bpd of supply were removed from the market, and 3) the Kurdistan issue. Iraq has sent military forces into the Kurdish controlled areas surrounding the Kirkuk oil fields in northeastern Iraq. The area produces 500,000 bpd and there’s concern that if the Kurd and Iraqi forces clash at least some production will get shut-in.
On Friday Baker Hughes reported the rig count fell by 8 yesterday. The oil rig count fell by 5 while gas-directed rigs fell by 2. (1 was miscellaneous). Certainly not a bearish report.
On nothing but bullish news WTI is up 75¢ this morning.
Courtesy of MDA Information Systems LLC
• Prices little changed on Friday.
• Prices hit 2 week high last week.
While prices ended little changed on Friday closing up 1.1¢ at an even $3.00, they did hit a 2 week high last week just below $3.05 driven by a supportive cash market partly due to Gulf production remaining shut-in. The calendar 2018 strip remains strong closing up 2¢ at $3.078. The cash market has been strong also because of the warmer weather to date. This October power burn so far this month is 3 Bcf/d higher than October 2016. Temperatures for the first half of October are the warmest in the last decade.
This morning the 11-15 day forecast is showing a major change from last week. Last week the 11-15 day forecast was for above normal temps. Today the forecast has done a 180 with marginally below temperatures forecasts for the 11-15 day time frame.
The cash market is starting the week off weak and natty is down 7.2¢.
Per our EIA, residential electricity rates across the U.S. averaged 12.8¢ per kWh during the first half of 2017. (I can see you pulling out your bill!) This was an increase of about 3% compared to the same period in 2016. All but 6 states saw higher electricity prices this year than last. As usual, Alaska and Hawaii have the highest electricity prices in the nation with the former average being 18.1¢ and the latter 23.3¢ (ouch!) Hawaii’s source of fuel for generation is diesel which is markedly higher than the natural gas and coal available in the contiguous 48 states. As a group, the 6 states in New England have the second highest residential electricity prices.
A major driver of the higher prices is attributed to the rising cost of fuels used for generation. For example, the cost of natural gas delivered to U.S. electric generators during the first half of 2017 was 37% higher than the first half of 2016. A lot of this was due to the mild 2016 winter.
The other factor pushing prices higher is the trend in recent years for power utilities to increase their expenditures on transmission and distribution facilities. The Polar Vortex, when the PJM grid barely avoided rolling blackouts, was a major wakeup call not only for utilities in the northeast, but across the nation.
On a logistical note, I will be out of the office tomorrow and Wednesday so the next Morning Energy Blog will be on Thursday.