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Morning Energy Blog – July 25, 2017

Equities and the Economy:

• U.S. stocks end mixed.
• Nasdaq hits another record high.

It was a relatively quiet day yesterday with mixed price action. The Dow fell 67 points to 21,513 and the S&P lost 3 points to end at 2,470. Meanwhile the Nasdaq posted a 23 point gain finishing at 6,411, is 41st record high of 2017. The tech-heavy index is up a huge 20% y-t-d. Turning to the economic news of the day, the major report was the National Association of Realtors report stating existing home sales fell 1.8% in June to an annualized rate of 5.52 million homes., Year-on-year sales are up 0.7%, but an acute shortage of inventory continues to hamper sales. Last month the number of homes on the market slipped 0.5% to 1.96 million units, down 7.1% from a year ago. The housing inventory has now dropped for 25 straight months. This is leading to bidding wars which is pushing housing prices higher. The median existing home price rose 6.5% from a year ago to an all-time high of $263,800. Demand for housing is being driven by a tighter labor market which is boosting employment opportunities for young Americans. That being said, it’s really squeezing some folks because housing prices are outpacing wage gains.

Today and tomorrow the FOMC meets to discuss monetary policy. Don’t expect a change in interest rates. However, I do expect the committee to say in its post-meeting communique it will shrink its balance sheet, which is a form of monetary tightening. That means it won’t buy back the bonds that are expiring.

Being no changes are expected from the Fed, investors will continue to focus on corporate earnings. Nearly 200 S&P companies are scheduled to report this week. Stock prices are at record highs. Want to know why? So far 68% of companies who’ve reported beat forecasts for earnings per share and 75% bear on sales. This is the highest proportion in over 5 years!

It’s looking like a good day. The Dow is up 124 points being driven by, guess what, better than expected earnings results from Caterpillar and McDonald’s.

Oil

• OPEC meeting in St. Petersburg.
• Dollar stabilizes near one-year low.

Let the jawboning begin!  It always happens at OPEC meeting time.  Yesterday WTI rose 57¢ to $46.34 and Brent closed up 54¢ at $48.60 on comments from Saudi Arabia the it would cut exports in August and Nigeria saying it would cap production at 1.8 million bpd.  The Saudi minister said his country would limit crude exports at 6.6 million bpd in August which is down about 1 million bpd from a year ago.  Got to hand it to the Saudi’s.  They’re taking the entire global balancing matter on their back.  Nigeria, who remember is not in the production cut agreement, stated it would cap it’s production at 1.8 million bpd, which is 100,000 bpd greater than what it is currently pumping.

On a less constructive note for pricing, Libya’s oil production has reached 1.069 million bpd which is a new recent high.

This morning WTI is popping up $1.01¢ on the Chinese government’s report this morning that imports will exceed 400 million tonnes this year and grow by double digits next year making China the world’s largest importer of oil.

7-25-17
WEATHER BAR IMAGE FOR BLOG-
Courtesy of MDA Information Systems LLC

Natural Gas

• Prices lower on moderate weather forecast.
• Production creeping higher.

Natural gas prices took it on the chin yesterday with the early morning weather forecast moderating from last week showing no above normal temperatures for the next couple of weeks in the Midwest and east.  Additionally, U.S. dry natural gas production hit 73 Bcf/d which is up a Bcf/d from last month.  On the bearish fundamental news natty lost 7.1¢ closing at $2.899.  Prices have fallen nearly 25¢ over just the last 3 sessions hitting a 2 week low.

On a bullish note, LNG exports continue to ramp up Sabin Pass feedgas reached an all-time high yesterday increasing 0.4 Bcf/d to 2.5 Bcf/d.  This will go higher.  The LNG facility continues to expand.

As temps go, so goes prices.  This morning the weather forecast is now showing above normal temps returning to the Midwest and east which is bringing in some buying.  Natty is up 4.1¢.

Elsewhere

We all know about pizza delivery and the continual quest by companies to deliver to your doorstop the “just out of the oven” perfect temperature, fresh pizza.  Well one company is taking this to a whole new level:  Zume Pizza.  The Mountainview, CA based private company, co-founded by ex-Microsoft executive Ales Garden, actually bakes your pizza on the way to delivering it to you!  Their trucks are equipped with 28 or 56 individual pizza ovens and using GPS the truck fires up the oven when it’s four minutes away from your house so the pizza is coming out of the oven as the truck arrives.  The cook en-route system might sound like it was designed to give you freshly baked pizza, but it was actually Garden’s solution to a knotty governmental problem:  it’s against the law for workers to cook food in a truck that’s moving.  The solution was to automate the cooking while the truck is in motion.  No person is involved in the cooking process so no laws are broken.  Another issue was that the law states that a food truck must contain a 3 compartment sink for washing utensils, etc.  Garden didn’t want to waste precious oven space on a sink so he came up with a utensil-free truck.  As the pizza finishes cooking it ejects from its oven like a CD from a player going directly into a box.  No one ever touches the food.

And here’s the best part for me.  Zume’s pizza has half the calories by slice than the average pizza.  How?  The number of calories in a pizza is a function of how much sugar is in it.  Zume uses less sugar.  Also, Zume’s pizzas have half the cholesterol and half the fat.

The pizza’s range in cost from $10 to $20.  I’ll take a piece.  Uh, make that two.

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