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Morning Energy Blog – October 23, 2017

Equities and the Economy:

• More record closing highs.
• Corporate earnings and tax reform drivers.

All three major U.S. stock indexes closed at record highs on Friday. The Dow rose 166 points, 0.71%, to 23,329, the S&P 500 gained, 13 points, 0.51%, to finish at 2,575 and the Nasdaq added 24 points, 0.36%, to 6,629. The Dow and S&P have registered 6 weeks of gains and the Nasdaq 4. For the week the Dow gained 2%, the S&P 0.9% and the Nasdaq 0.4%. Friday marked the 24th time in 2017 that all three main benchmarks simultaneously closed at record highs. Laissez les bon temps roulez! Equities got a boost from 1) the Senate’s approval late Thursday of a 2018 budget blueprint which could pave the way for the Republicans to pursue a tax-cut package without Democratic support and, 2) Q3 2017 corporate earnings reports which have been fairly upbeat with the bulk surpassing expectations. Now you may say. “Tax reforms are far from done and we have no idea what they will be and how large.” And you’d be correct. But remember, like commodities, stocks are priced reflecting future earnings, not present. Basically, investors are pricing stocks now based upon what they think earnings and revenue will be 6 months in the future.

The primary economic report on Friday came from the National Association of Realtors which reported, surprisingly, that existing home sales in September rose 0.7% which was well above expectations of a decline of 0.1%. For the 12 months, sales are down 1.5%. Further, the median price for a home for the month was $245,000, up 4.2% from a year ago. Inventories rose 1.6% m-o-m but are down 6.4% from a year ago. Mr. Lawrence Yun, NAR’s economist, said his members continue to say not enough listing are available, especially at the lower end of the market, and fast rising prices are straining the budgets of perspective buyers.

This morning the European markets are in the green which is bringing in some buying here in the states. The Dow is up 34 points. Corporate earnings will remain the focus this week.


• Oil prices unchanged for the week.
• Oil rig count falls for 3rd consecutive week.

The November WTI Nymex contract expired for the month on Friday posting a small gain of 18¢ on Friday closing at $51.47. For the week the contract was up 2¢. Brent closed up 52¢ at $57.75, up about 1% for the week. Tensions are still high in northern Iraq with skirmishes between the Kurds and Iraqis. While production is down in the conflict region the Iraqi government has said they’ve increased oil exports in the south to offset any shortfall in the north.

Looks like U.S. oil producers are scaling back some. On Friday, Baker Hughes reported the oil rig count dropped 7 last week and the natural gas rig count dropped by 8. This is the 3rd week in a row the oil rig count has fallen and is now at a 4 month low.

On the supply side, India’s thirst for oil is growing. The country imported a record 4.83 million bpd in September.

blog weather 10-23-2017
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices rise on Friday.
• Post weekly loss.

On Friday the November natural gas Nymex contract closed up 4.2¢ at $2.915. However, for the week natty lost 2.8%. Prices have been choppy with each weather forecast model run causing mild knee-jerk reactions. I think traders are a little quick on the trigger as we approach the winter season.

Weather forecasts are little changed from last week but I think the cool front that moved into the Midwest over the weekend resulted in some utilities coming in short this morning and having to buy some molecules which is supporting the cash market which is driving futures higher. Natty is up 8.5¢ this morning to guess where? The magic $3.000!


Things you may not know about America’s independence

• Independence did not start at the Second Continental Congress. It was way earlier at the state and local level. The very first Declaration of Independence came on Oct 4, 1774 from the town of Worcester, Mass. That was 21 months before the Continental Congress declared independence. During the next 21 months 90 state and local declarations of independence would be made.

• Although we currently take great pride in our flag, the soldiers of the American Revolution did not actually fight under the American flag. In fact, our Founders did not really consider the flag to be all that important and the design of it varied in both in the number of stripes and in the formation of stars. The reason a uniform flag was adopted was so that our navy ships could easily be identified when arriving in foreign ports.

• Our Founding Fathers were not radical new thinkers. All of their ideas and philosophies were rooted deeply in history. Ideas of people’s rights, liberty and social contract can be traced back way beyond declaring our independence, most famously to the Mayflower Compact. They can even be seen at work in the medieval era with the Magna Carta in 1215. Thomas Jefferson, the primary author of the Declaration of Independence, even said the declaration was “not to find out new principles, or new arguments, never thought of…”

• Even though we say it a lot, we’re not a democracy. We’re a republic. Our Founding Fathers deemed this an important distinction and discussed the matter at length. In the end, our Founding Fathers claimed a democracy was both extreme and dangerous for a country as it would most assuredly result in the oppression of the minority by the majority. Our Fathers were very wary of power no matter who had it and thus limited it as much as possible. Hence, our unique system of checks and balances.

• Our Founding Fathers would not have recited the Pledge of Allegiance. The Pledge was written over a century after America’s founding. And get this. It was written by a socialist! Francis Bellamy. Most likely our Founding Fathers began their meetings and celebrations with a prayer. In fact, the very first resolution brought before the First Continental Congress, and immediately passed, was the declaration they would open every meeting with a prayer.

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