Equities and the Economy:

• Dow snaps 4 day losing streak.
• Tax reform proposal supportive.

Erasing losses earlier in the day the Dow closed up 56 points at 22,341 snapping a 4 day losing streak. The S&P 500 rose 10 points finishing at 2,507, less than 0.1% off its record close set last week. The Nasdaq gained 73 points, 1.2%, to 6,453. The Russell 2000 gained 28 points, a hefty 1.9%, to close at 1,485 posting a new record high marking its largest one-day percentage increase since March 1st.

The impetus of the move was the Republicans unveiling their plan to overhaul the U.S. tax code that looks to sharply reduce tax rates on businesses and many individuals. The prospect of tax reform being passed has been one of the main drivers behind the rally in equities in 2017. However, the Republican controlled Congress was unable to pass healthcare reform despite several attempts and it is very unclear how likely a tax reform bill will get passed in a bitterly divided Congress.

Turning to the economic news, the National Association of Realtors reported that pending home sales were down 2.6% in August. This was a poor report. Economists were looking for pending sales to be unchanged from July. August marked the 5th decline over the past 6 months. The NAR’s economists stated that activity got the “one-two punch” of limited listings and home prices rising far above incomes. Demand continues to overwhelm supply in most of the country with buyers, particularly first time buyers, being frustrated and temporarily postponing their search.

This morning the Dow is down 42 points.

Oil

• EIA shows refineries back.
• U.S. exports hit record high.

The EIA released its weekly crude and products report and if there was a clear takeaway it’s that the refineries are coming back strong. Crude stockpiles were forecast to have increased by 1.3 million barrels but actually fell 1.8 million barrels. Gasoline inventories were forecast to fall by 100,000 barrels but actually increased by 1.1 million barrels. Refinery utilization was up 5.4% for the week and only ½% below the 5 year average.

The EIA also reported that that U.S. petroleum exports increased by over 500,000 bpd on the week to 1.49 million bpd which is the highest weekly level ever reported by the EIA.

Of a more longer term nature, strong demand from emerging economies led by China and India and surprising summer demand here in the U.S. has left inventories of diesel, jet fuel and heating oil at their lowest level in 3 years. This could mean higher prices this winter for homeowners using heating fuel.

Overnight WTI rallied to just below $53.00, its highest price in 5 months. Prices have backed off a little and WTI is up 50¢ as I write.

Courtesy of MDA Information Systems, LLC

Natural Gas

• October Nymex contract expires.
• $3.00ish is the magnet.

The October natural gas Nymex contract expired yesterday with the bulls in control most of the day closing up 5.6¢ at $2.974. On a multi-month basis natural gas has been moribund. Let me give you some data. As I mentioned, the October contract expired at $2.974. Going backwards, the September contract expired at $2.961 and the August contract expired at $2.969. So over the last 3 months the spread has been a miniscule 1.3¢. Can’t remember the last time I’ve seen such a lack of volatility. Of course there’s been more volatility intra-month, but the most important figure, the monthly settle, which determines many, many consumers monthly natural gas and electricity price, has been amazingly stable.

Be glad you’re not a natural gas producer in Alberta, Canada, which by the way is the Canadian province which produces the greatest amount of hydrocarbons. Primarily driven by pipeline maintenance gas producers received somewhere between 3¢/MMBtu and minus 2¢ for their gas yesterday. That’s not a typo. Ouch!

Today is EIA storage report day and traders are looking for an injection of 63 Bcf. Last year for this week the injection was 49 Bcf and the five year average is 84 Bcf.

The November Nymex contract is beginning its first day as the prompt month down 1.6¢.

Elsewhere

On September 25, 1820, Salem, New Jersey held a trial. This wasn’t your normal trial though. This trial was against…tomatoes. The general populace believed that tomatoes were poisonous, so Robert Johnson stepped in to prove them wrong. To do so, he bravely stood before a crowd at the courthouse and consumed a whole basket of the fruit. Not dying, the trial was promptly dismissed.

There will be no Morning Energy Blog tomorrow. I need a day off.