Equities and the Economy

Note: This is the last Morning Energy Blog until Monday September 21st because I will be travelling on business.

Good morning. Looking at the closes yesterday you would have thought it was a fairly quiet day in equities with the Dow closing up 77 points at 16,330, the S&P 500 gaining 10 to 1,952 and the Nasdaq up 40 to 4,796. However, it was another day of wild swings with the Dow up as much at 179 points but running out of momentum in the final two hours. Yesterday’s gains followed a 1% market decline on Wednesday and weeks of volatility largely tied to worries about a slowdown in Chinese growth and its impact on the global economy. Investors are also worried and confused about whether or not the Fed will raise interest rates at next week’s FOMC meeting on Wednesday and Thursday. For the record, the Dow is down 7.3% from the start of the year. The S&P is down 5.2% year to date and the Nasdaq is actually 1.3% higher y-t-d. After the sudden, stunning 12% drop into late August, the S&P has been shuttling for two weeks within a new, lower range of and 1988 and 1913.

Fundamentally, the only important data point yesterday was weekly jobless claims which came in right at expectations, 275,000. The major trend is still positive, i.e., less claims and unless claims start coming in at over 285,000 things are good.

This morning the Asian markets closed mixed but the movements were muted. However, European markets are weaker led by France’s CAC 40 which is down 0.77%. Here in the states investors are taking their early queue from the overseas action and the Dow is down 85. All in all though, global equities are pretty quiet, and they may stay that way until the results of the FOMC meeting are known.

Oil

Oil prices leaped yesterday with WTI closing up $1.77 at $45.92 and Brent rising $1.31 to $48.89. The DOE released its weekly crude and products inventory report yesterday and although it was marginally bearish the data showed gasoline demand y-o-y is up 4% which brought the bulls in pushing prices higher. After rebounding $10 from last month’s 6 year lows both WTI and Brent have slipped a couple of dollars and have settled into a sideways consolidating trading.

This morning WTI is down $1.26 on a Goldman Sachs report released today that WTI prices could go as low as $20/bbl with the current oversupply persisting in 2016. They expect WTI prices to average $45 next year, down from their previous forecast of $57. For Brent their 2016 forecast is $49.50, down from $62.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its always much anticipated weekly storage report yesterday noting the U.S. injected 68 Bcf last week which was 8 Bcf less than forecasts and the market responded accordingly. Immediately after the report’s release prices rose 8¢ but sellers hit those bids and prices eroded and natty closed up 3.2¢ at $2.683, right around that $2.70 number which we’ve been straddling for months now. Storage inventories are currently 373 Bcf greater than last year and 127 Bcf greater than the 5 year average.

This falls nuclear refueling season, which kicked off last Monday with the St. Lucie Unit 2 plant in Florida, will be much busier than last fall’s outage season. The season, which concludes in December, is expected to include 30 units totaling 30,874 net MW going offline, a material 36% increase from fall 2014. The amount of nuclear power out of service is expected to peak at 18,200 MW during the first week of October when 16 units are scheduled to be down. This is no coincidence being that statistically October is the lowest natural gas demand month of the year. However, if all the lost nuclear generation is replaced with natural gas fired generation the demand increase on natural gas will be 3.3 Bcf/d, or about 23 Bcf per week. Not an inconsequential sum my friends.

Elsewhere

Something unique to this Morning Energy Blog has occurred this summer and fall. That is, I haven’t mentioned once about hurricanes threatening the U.S. Yesterday was the statistical peak of the hurricane season and this season, fortunately, has been utterly moribund with no threats currently in the future. You can thank El Nino for this for one of the characteristics of an El Nino is a lower number of hurricanes. The reason is that an El Nino increases upper level wind speed which shears a hurricane latterly blowing it apart. Forecasters are predicting we could have one of the strongest El Nino’s on record. That being said, they do add that this month and even more importantly October are critical to determining how strong of an El Nino we’ll have this winter.

Today is the 14th anniversary of 9/11. Do you remember where you were? I remember exactly where I was at 8:46 AM EDT. Never forget.

Have a good weekend.