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Morning Energy Blog – October 27, 2017

Equities and the Economy:

• Equities rebound.
• Strong corporate earnings reports.

After suffering their biggest daily decline in 7 weeks, the Dow and S&P 500 rebounded, however, the Nasdaq edged lower. The Dow posted a 71 point gain to 23,401 and the S&P 500 added 3 points to 2,560, but the Nasdaq slipped 7 points ending at 6,557. The first two indexes were supported by a fusillade of better-than-expected corporate earnings reports led by DuPont. The Nasdaq was dragged down by the healthcare sector with losses accelerating after the St. Louis Post-Dispatch reported that Amazon gained approval from a number of state pharmaceutical boards to become a wholesale distributor. (I wouldn’t want to be in any business that Amazon decides to enter!). Stocks also got support from with the House of Representatives passing a budget bill yesterday which paves the way for the Senate to pass a tax reform package with a simple majority vote rather than requiring 60 votes.

Regarding the fundamentals, the University of Michigan released its consumer sentiment index noting it rose to 101.1 in October from September’s 95.1. Not only was this higher than expectations, it is the highest the index has been since January 2004.

So we have good corporate earnings and a strong bout of sentiment indexes of late. This portends solid growth for this quarter and next, which are strongly consumer driven.

European equities are solidly in the green today which is bringing in some buying here in the states and the Dow is up 18 points.

Oil

• Oil prices close at 6 month highs.
• Saudi Arabia and Russia look to extend production cut agreement.

WTI gained 46¢ yesterday closing at $52.64 and Brent added 86¢ settling at $59.30 and logging their highest closes since last April. A couple of drivers are at work here. First, the Wall Street Journal reported that Saudi Arabia and Russia are “on the same page” to extend the current production cut agreement through 2018. The agreement is to expire March 31, 2018. Saudi Arabia has been very vocal lately of their desire to extend the agreement with Crown Prince Mohammad bind Salman stating yesterday “We are committed to work with all producers… and will support anything to stabilize oil demand and supply.” Saudi Arabia wants to bring global supplies to the 5 year average. Since the time when the production cut agreement went into effect the excess above the 5 year average has been cut in half. Impressively, the adherence to the agreement by OPEC and friends has been around 86%. Remember, next year Saudi Aramco is going out for its IPO offering 5% of the company to the public (which according to my readings is going to be very well received!) and will do whatever it takes to keep oil prices elevated at least through that IPO.

Weighing marginally on prices is that yesterday it was reported that U.S. exports continue to rise hitting a new 4 week average of 1.7 Million bpd.

This morning the traders are hanging around the water cooler. WTI is down 11¢. Chatter.

blog weather 10-27-2017
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices close slightly lower.
• Storage report at expectations.

The EIA released its always much anticipated weekly storage report yesterday stating 64 Bcf was injected into storage last week which was right at traders’ expectations and natty prices changed little with the November contract closing down 2.9¢ at $2.890. This is the 4th week out of 5 that the weekly injection amount has been below the 5 year average.

Things are markedly different this morning for the overnight weather forecast shifted much warmer for the 6-10 day period which is bringing the bears out of their caves. The November contract is trading down a material 7.3¢ as I write. Today’s closing price is very important for today the November Nymex contract expires setting one “leg” of many derivative products as well as the price of electricity for those unhedged on a heat rate product as well as those on a basis product for their natural gas supplies.

Helping the bears, U.S. natural gas production hit a new all-time high yesterday at 75.79 Bcf. Northeast production (Marcellus and Utica) was the driver hitting a new all-time high of 25.87 Bcf.

Elsewhere

10 facts about your body.

• The strongest muscle in the human body is the tongue. The hardest bone is the jawbone.

• Feet have 500,000 sweat glands and can produce more than a pint of sweat a day.

• Speaking of feet, they have 52 bones accounting for one quarter of all the body’s bones.

• Sneezes regularly exceed 100 mph. Coughs clock in at 60 mph.

• Your body gives off enough heat in 30 minutes to bring half a gallon of water to a boil.

• Everyone has a unique smell, except identical twins, who smell the same.

• Less than one third of the human race has 20-20 vision. That means that two out of three people cannot see perfectly.

• The three things pregnant women dream most about during their first trimester are frogs, worms and potted plants.

• One human brain cell can hold 5 times as much information as an encyclopedia. Your brain uses 20% of the oxygen that enters your bloodstream, and is made up of 80% water. Though it  interprets pain signals from the rest of the body, the brain itself cannot feel pain.

• The fastest growing nail is on the middle finger (Hmmm.)

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