Morning Minutes 11/09/2018

Natural Gas Soars as Crude Oil Goes Into a Bear Market

November 9, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Coming off a soft Thursday, US stocks are sliding this morning with Dow Futures pointing down about 100 points. Yesterday’s Fed decision and statement was as expected, treasury yields have levelled off, and earnings season is in the later innings so the main factor dragging on markets today appears to be falling energy prices.

Crude oil is down sharply again today with WTI falling 1.8% and Brent retreating 1.6%. Both contracts have broken round numbers with WTI falling under $60/bbl and Brent dropping under $70/bbl. What a difference a month makes. Since peaking on October 3rd, WTI has plunged 21.7%, to enter an official bear market with a decline of over 20% form its 52-week high, while Brent is close, having nosedived 19.3%. The main culprit for the plunge appears to be increasing US production (which has surpassed Saudi Arabia and Russia to make the US the world’s biggest oil producer), along with the exemptions on sanctions that have enabled some countries to keep importing oil from Iran, and perhaps some concerns that global instability could erode demand.

There is an OPEC and non-OPEC committee meeting this weekend where production cuts may be discussed but unless something tangible comes out of it (ie more than just talk), oil could continue to struggle as the last attempt to talk the price up failed after a day or so. That being said, technical indicators like the RSI suggest oil is getting really oversold in the short term so it may not take much to spark a relief rally either.

Gasoline is down another 2.0% today in tandem with falling crude. Natural gas, on the other hand, is up another 3.0%, clearing $3.60/mmbtu. As I look out my window and see snow falling, it appears the early onset of winter continues to boost speculation that we could see higher heating demand this year at a time when supplies are already running below average.

Boosted by success at the box office (Studio revenues rose 50% over year), Disney reported earnings well above expectations. EPS of $1.48 beat the $1.34 street estimate while sales of $14.3B superseded the $13.7B the street was anticipating. For investors wondering what the company can do for an encore, management noted the potential for future growth from the Twenty-First Century Fox acquisition and the launch of its Disney+ streaming service, which is planned for 2019.

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