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Morning Energy Blog – October 4, 2017

Equities and the Economy:

• U.S. equities book another round of records.
• Fundamental data continues to support.

The three major U.S. benchmark stock indexes posted yet another day of record highs. The Dow finished up 84 points at 22,641 marking its 5th consecutive day of gains. The S&P 500 rose 5 points to 2,535 posting its 6th straight positive session and the Nasdaq added 15 points ending at 6,532 also marking 6 consecutive days of higher closes. Not to be left behind, the Russell 2000 closed at an all-time high for a second day in a row gaining 2 points to 1,512. This index of small companies has trounced the larger benchmark peers over the past 30 days being up 7% compared to a 3% for the Dow and a 2.3% gain for the S&P over the same period. That being said, it’s been a very good year to date for the three most mentioned indexes. The Dow is up almost 15% this year to date, the S&P is up 13.2% and the Nasdaq has gained a whopping 21%.

Solid global fundamentals and cheap money offered by our Fed, the ECB and the Bank of Japan are fueling this market. Turning to that economic data, two of the three major auto makers posted better than expected sales in September aided by demand to replace hurricane damaged vehicles although heavy discounts were required. Ford posted sales growth of 8.7% and General Motors stock hit a record high in early trading yesterday.

This morning the Dow is down 21 points with investors waiting for ADP’s September private employment report followed this Friday by the Labor Department’s employment report for last month.

Oil

• Prices end at two week low.
• Excess supply worries resurrect.

After falling more than 2% on Monday WTI slipped 16¢ yesterday to $50.42/bbl closing at its lowest level since September 19th. Brent shed 12¢ to an even $56. Oil prices had been on a run to the upside and the market was long when traders read the Reuters report stating OPEC”s crude production in September hit 32.86 million barrels per day which is not only up from August but also above the cartel’s production cap and the selling began in earnest. $50 to WTI seems to be like $3.00 is to natural gas. A magnet where the market is comfortable. All that being said, it definitely appears global oil supply and demand are coming more into balance. In an effort to keep that trend going, leaders from Saudi Arabia, including the Monarchy, will be making their first ever state visit to Russia to discuss cooperation to ensure oil prices don’t fall. While this definitely represents an elevation in the two countries relationship, no doubt the issue of Syria will be discussed. Syria is Shia and backed by Russia and Saudi Arabia is Sunni.

Today traders will look to API’s report, which is released after the closing bell, for direction. WTI is quiet this morning down 6¢.

blog weather 10-4-2017
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• Cash still weighing on the market.
• Winter weather forecast supportive.

Like Monday, the day cash market weighed somewhat on the futures market. Cash gas traded 14¢ lower than the November futures contract which pulled the contract a tad lower closing down 2.1¢ at $2.895. While it’s expected for October cash to trade less than November futures, that spread was on the large side stymieing the bulls. The calendar strips of 2018 and beyond ended virtually unchanged. Front month natural gas prices have now dropped almost 30¢, 9%, over the past couple of weeks and are currently in the $2.87 to $2.90 area which has proven to be a difficult level for the bears to push through.

Helping the bulls, one of the most watched weather forecasting services released their winter (December – February) forecast yesterday which showed they expect the upper Midwest to have a cold winter. I’ve been following some of these weather forecasting services for many years and with the benefit of hindsight it’s 50/50 if their winter forecast materializes. That being said, take it from an ex-natural gas trader, that forecast is going to make traders a little more reluctant to take the short side.

This morning natty is popping being up 7.4¢.

Elsewhere

Happy National Taco Day! Yes, that’s right. October 4th is officially National Taco Day. According to NationalTacoDay.com, last year Americans ate over 4.5 billion (that’s with a “b”!) tacos! That’s 490,000 miles of tacos which could take you to the moon and back. That also equates to 775 million pounds of tacos, which is the weight of two Empire State Buildings. Que tengas un buen dia.

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