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Morning Energy Blog – October 25, 2017

Equities and the Economy:

• Dow sets yet another record high.
• Corporate earnings driving market.

Yesterday the Dow catapulted to a new record high closing up a big 168 points, 0.72%, at 23,442 driven by good earnings reports from a couple of its members. The blue-chip index posted its biggest daily percentage gain in more than a month. Heavy-machinery manufacturer Caterpillar’s report brought in buyers giving its stock price its largest one-day percentage gain since July. Fellow Dow component 3M Company’s report resulting in its stock price rising the most since July 2009. Caterpillar’s report was important because the company exports so much that it suggests the global economy is improving.

The S&P 500 added 4 points to end at 2,569 and the Nasdaq rose 12 points to 6,598. Both the S&P and Nasdaq are ½% point away from record levels.

Yes the current bull run is long in the tooth and yes valuations are stretched, but as John Brady, Managing Director at R.J. O’Brien & Associates, said so succinctly, “There’s just no compelling investment alternative to equities right now.”

Turning to the fundamental news, IHS Markit released its flash index for the service sector stating it rose from 55.3 in September to 55.9 in October. Anything above 50 indicates expansion. The take-away, the economy is doing well, and continues to do so.

This morning the market is taking a breath with the Dow down 10 points. By the way, Japan’s Nikkei just completed a 16 day winning streak taking the index to a 21 year high.

Oil

• WTI closes at 6 month high.
• Saudis pledge to balance the market.

Yesterday Saudi oil minister Khalid al-Falih said his country will “do whatever it takes” to bring global crude inventories back to the 5 year average. His comments were fodder for the bulls who pushed WTI up 57¢ to $52.47, its highest close since April 17th. Brent popped 98¢ settling at $58.33, its highest finish since September 26th. Oil prices have rallied more than 25% over the past couple of months.

The Saudi oil minister also said more needs to be done which traders are interpreting as the production cut agreement will be extended. It’s set to expire March 31, 2018. He also pointed out that U.S. shale production has risen only slightly which is a strong statement because many folks believe the U.S. shale producer will offset the cuts by OPEC and friends. Don’t forget, the U.S. oil rig count has fallen for 3 consecutive weeks. And we also have the clashes between the Kurds and Iraqi nationals in northern Iraq with the Iraqis retaking the oil-rich Kirkuk area. This also puts into question Kurdistan’s ability to export oil through Turkey.

Yesterday the API released its regular weekly crude and products report noting crude inventories rose by 500,000 barrels. This was contrary to expectations of a 1.8 million barrel drop. This was offset by a drop in gasoline supplies of 5.8 million barrels which was way greater than forecasts of a 300,000 barrel drop. All in all, the data was on the bullish side. Last night oil prices were printing “green” but this morning traders have backed away with WTI down 33¢.

blog weather 10-25-2017
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices end little changed.
• Market choppy.

Natural gas prices ended little changed yesterday with the November Nymex contract closing down 1.7¢ at $2.974. Traders are monitoring every weather forecast during the day and short term traders are pushing prices around.

Another LNG project is coming on line soon. Dominion Energy in its October construction schedule for its Cove Point, MD facility stated the company will be introducing feedgas into the terminal this month. The company said the project is 98.8% complete and expects commercial operation to begin before the end of the year. That’s another 0.8 Bcf/d of demand folks.

This morning natty is starting the day a tad weaker, down 4.2¢.

Elsewhere

In Switzerland, a new, one-of-a-kind giant machine is sucking carbon directly from the air. Climeworks AG recently installed a machine near Zurich becoming the first device to capture CO2 on an industrial scale directly from the air. The developers say the plant, which is a demonstration project, will capture about 900 tons of CO2 annually and pipe the gas to help grow vegetables. 900 tons is about what 200 cars produce. While the amount of CO2 captured is a small fraction of what firms hope to trap at large fossil fuel plants, Climeworks says it’s a first step to their goal to capture 1% of the world’s CO2 emissions. To do so with the existing machine they’d need a whopping 250,00 of these machines.

The machine sits on top a waste heat recovery facility that powers the process. Fans push air through a filter system that collects the CO2. When the filter is saturated, the CO2 is separated at temperatures above 212 degrees Fahrenheit. The gas is then sent through an underground pipeline to a greenhouse to help grow vegetables.

The plant has many critics, most of who say it’s much cheaper to perfect carbon capture directly at fossil fuel plants and keep the CO2 out of the air in the first place. It’s estimated the Climeworks machine captures CO2 at about $1,000 per ton which is 10 times the cost to remove it at the fossil fuel plant. Supporters say it’s just a matter of lowering costs. (Think wind power. It’s now pretty much competitive with fossil fuel electric generation even without the subsidies. Solar, not so much).

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