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Morning Energy Blog – October 31, 2017

Equities and the Economy:

• Stocks pull back from record territory.
• Falling Merck shares and fiscal policy drivers.

U.S. stocks pulled back from record territory yesterday with the Dow closing down 85 points at 23,349, the S&P 500 losing 8 points to 2,573 and the Nasdaq Composite slipping 2 points to 6,699.  A couple of drivers were at work.  First, Merck, a member of both the Dow and S&P 500, share price fell a big 6.1% after suffering a setback to its key cancer medicine.  Second, Bloomberg reported that the House of Representatives was discussing a phase in of corporate tax cuts over several years as opposed to occurring all at once.  And then let’s not forget that the major stock indexes are at record highs and profit taking is not unreasonable.

Turning to the fundamentals, personal income was reported up a healthy 0.4% in September comparing well to August’s increase of 0.2%.  Consumer spending rose 1.0% in September driven by a spike in auto sales following the recent hurricanes (I know a family that lost 3 cars in the Harvey floods!).  The Dallas Fed reported its General Activity Index for October rose to a big 28.  21 was expected.  Much of the strength can be attributed to post-hurricane rebuilding efforts.  While this is a parochial rather than catholic data point, it’s nicely positive and we’ll always take positive news over negative.

The FOMC begins its 2 day November meeting today.

This morning the Dow is up a little, 29 points, being supported by European stocks which are trading marginally higher.

Oil

• WTI price hits 8 month high.
• Brent closes at over 2 year high

WTI finished 25¢ higher at $54.15 yesterday which is its highest close since February 23rd.  Brent settled up 46¢ at $60.90, its highest close since July 2, 2015.  Last week WTI and Brent posted hefty weekly gains of 4.0% and 4.7%, respectively.  The market continues to be buoyed by talk of extending the production cuts to the end of next year.  Saudi Arabia has done a fine job of managing expectations with much of the bullish sentiment attributed to comments out of Riyadh last week.  Additionally, strong global economic growth is fueling demand, especially in China and India.

On a slightly bearish note, the Iraqi government stated exports from its southern oil fields have risen to 3.45 million bpd as it aims to make up for the shortfall from the northern Kirkuk fields which have seen fighting with the Kurds tapering production there.

This morning the oil market is moribund with WTI down 4¢.

10-31-17

WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• No significant change in fundamentals.
• Prices end little changed.

After dropping to an eight month low late last week prices stabilized yesterday with the December Nymex contract closing up 0.2¢ at $2.966. There were no material changes in the fundamentals yesterday. The weather models came in slightly cooler but nothing of significance. U.S. production backed off record highs. These two factors brought in support with some shorts taking profits.

The weather forecast this morning is little changed from yesterday, but continues to show no material cold for the lower 48 for the next couple of weeks. That said, there’s a polar pig forecasted for western Canada in the 6-15 day time frame. Traders will definitely be keeping an eye on that to see if it drops into the Midwest.

Another LNG facility is about to come on line. Dominion Energy’s announced it will introduce feed gas to its Cove Point, MD this week as it completes its advanced-commissioning phase. Commercial operation is expected before the end of the year. Similar to other LNG “trains,” the capacity is 0.8 Bcf/d and will probably run at 0.7 Bcf/d.

This morning natty is marginally on the defensive down 3.3¢.

Elsewhere

Today marks the 500th anniversary of one of the most important political/philosophical shifts in modern history.  It was on October 31, 1517 that Martin Luther is said to have nailed his 95 Theses to the wooden doors of the local church in Wittenberg, Germany.  In his theses Luther attached the church’s corruption and the indulgence-for-sale system that had grown popular.  His declaration was that Christians are forgiven through the grace of God alone, and not through other means.  Luther’s challenge, the protection he obtained, and the reformers he inspired laid the foundation for the Protestant establishments of colonial America.  Nearly all of American history bears the imprint of that act of protest.  The movement he started went beyond religion.  For the first time, western individuality moved to center stage laying the groundwork for capitalism and the philosophy of free will.  It eventually set the stages for democracy that had been lost since the days of ancient Greece.  Quite frankly, it changed everything!  Happy Reformation Day!

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