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Morning Energy Blog – October 26, 2017

Equities and the Economy:

• U.S. stocks have worst day in 2 months.
• Corporate earnings disappoint.

I have something new to report. Stocks fell yesterday. Lately we’ve been like very spoiled children for day after day the major U.S. stock indexes have risen, if not set new record highs. No markets go straight up (although of late it seems stock price have!). Yesterday, the Dow fell 112 points to 23,329, the S&P 500 dropped 12 points to 2,557 and the Nasdaq finished at 6,564, down 35 points. It was the Dow and S&P’s worst day in 7 weeks. Investors’ focus has been on corporate earnings and a couple of companies in the S&P posted disappointing reports yesterday which brought in the selling. Burrito chain Chipotle’s stock price fell 15% after releasing their earnings report and chip maker AMD’s stock price fell 14% on disappointing guidance.

We need to keep an eye on bonds. The 10 year Treasury fell yesterday sending its yield to a 7 month high at 2.475%. The higher the bond yield the more money that rotates into bonds and out of equities. Seeing the forest through the trees though, the economic picture remains robust with strong fundamentals.

Speaking of fundamental news, the Commerce Department reported that durable goods orders rose 2.2% in September and orders for non-defense capital goods, a proxy for business investment plans, rose 1.3% for the month and 3.8% for the 12 months. These figures were much greater than economists were forecasting and very strong figures.

Commerce also reported that new home sales rose a stunning 18.9% in September to an annualized rate of 667,000 units, the best since October 2007. The median price of a new house rose 1.6% from a year ago to $319,700 and inventory fell to 279,000. Strong data.

The big news this morning is the ECB, which literally just concluded its monetary policy meeting, announced it will scale back its QE bond buying program beginning in January buying 30 billion euros from the current 60 billion. The announcement wasn’t really a surprise to investors and they’re taking it in stride. The Dow is up 60 points.

Oil

• Prices close mixed.
• EIA reports crude U.S. crude inventories rise.

Yesterday the EIA in its regular weekly crude and products inventory report stated that crude stocks rose by 856,000 barrels last week. This surprised trader who were expecting a 2.2 million draw down. This was the first week in 5 that crude stocks did not decline week-on-week. Mitigating this data was also a surprise in the gasoline and distillates data which showed a whopping 10.7 million barrel decline, twice forecasts. All in all, the data was pretty much neutral, and oil prices reflected it. WTI fell 29¢ to $52.18 while Brent rose 11¢ to $58.44.

New reports from Russia are that OPEC and friends will make a final decision on extending the current production cuts in Q1 2018. However, the issue will be a key topic of debate at the next official meeting which is November 30th.

This morning it’s all quiet on the oil front with WTI down 3¢. Chatter.

blog weather 10-26-2017
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices slip.
• Production rebounding.

After a period of maintenance across various pipelines curtailing production, U.S. production rebounded yesterday and is now about ½ Bcf/d greater than the prior 6 day average. This has brought in some selling and yesterday the November contract settled down 5.5¢ at $2.919. Over the past couple of weeks prices have been trading around the $2.90 level. The ying-yang of it is that while U.S. production is healthy, we’re about to enter winter and storage levels are about 4% lower than the last 2 years. Additionally, the lower prices go, the more gas that gets burned for electric generation. Hence, we’ve been more or less trading around $3.00 for 5 months now.

Speaking of storage, it’s EIA storage report day. Traders are looking for an injection of 64 Bcf. Last year at this time we had a 74 Bcf injection and the 5 year average is 75 Bcf.

Natty is a little on the defensive this morning trading down 3.6¢.

By the way you U.S. natural gas producer, be glad you’re not producing in Alberta. Prices at the AECO hub in Alberta (equivalent to our Henry Hub) are averaging around 50¢/MMBtu. That’s a 15 month low. That’s gotta hurt.

Elsewhere

I got my undergraduate degree from Texas A&M University which is an institution steeped with tradition, but a tradition begun this year at the University of Iowa that ranks among the very, very best. Each Saturday when there’s a home game Hawkeye football fans pack their Kinnick stadium to root on their team. Located immediately adjacent to, taller and overlooking the stadium is the University of Iowa Stead Family Children’s Hospital. During each home game the children in the hospital gather on the top floor look down and watch the game. This year the Hawkeye fans began a brand new tradition. At the end of the first quarter 70,585 all turn and wave to the children on that top floor. Even the Hawkeye band has joined in. If this doesn’t bring tears to your eyes, nothing will.

http://www.ncaa.com/news/football/article/2017-09-21/iowa-football-fans-wave-childrens-hospital-hawkeyes-newest

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