Wall Street Breakfast: Global Energy Crisis

Global energy crisis - Energy prices continue to surge to fresh records as renewed fears stoke panic of the worst shortage in decades. India has warned it has only four days of coal reserves left, German power plants are running out of fuel and China just unloaded an Australian coal shipment despite an import ban and icy relations. Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks are adding to the pressure.Bigger picture: OPEC+ didn't come to the rescue yesterday as the group decided to continue its original plan of gradually releasing 400,000 additional barrels of oil per month. That's despite calls from world leaders, including the White House, to bring more crude on to the market and keep a lid on prices. According to the EIA, average daily crude production in the U.S. has been 6.7% lower than last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off by 15% compared to 2020.That's helping send oil prices to their highest levels in three years, with Brent (CO1:COM) and WTI crude (CL1:COM) touching $82 and $78 a barrel, respectively. High natural gas prices (NG1:COM) are also prompting American utilities to switch to coal this year, but their supply is constrained by miners that have cut capacity by 40% over the last six years. This past week, coal from the central Appalachia region rose $2.20 to $73.25, up 35% YTD and the highest level since May 2019.Thought bubble: "Investors are underappreciating the structural changes that have taken place in the North American energy landscape that could lead to these higher prices persisting for some time," wrote Lucas Pipes, an analyst with B. Riley Securities. Some are even calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050 (power demand is expected to increase 60% by then). "It is a cautionary message about how complex the energy transition is going to be," added Daniel Yergin, author of The New Map: Energy, Climate and the Clash of Nations. (32 comments)

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Top News Global energy crisis Shutterstock Energy prices continue to surge to fresh records as renewed fears stoke panic of the worst shortage in decades. India has warned it has only four days of coal reserves left, German power plants are running out of fuel and China just unloaded an Australian coal shipment despite an import ban and icy relations. Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks are adding to the pressure. Bigger picture: OPEC+ didn't come to the rescue yesterday as the group decided to continue its original plan of gradually releasing 400,000 additional barrels of oil per month. That's despite calls from world leaders, including the White House, to bring more crude on to the market and keep a lid on prices. According to the EIA, average daily crude production in the U.S. has been 6.7% lower than last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off by 15% compared to 2020. That's helping send oil prices to their highest levels in three years, with Brent (CO1:COM) and WTI crude (CL1:COM) touching $82 and $78 a barrel, respectively. High natural gas prices (NG1:COM) are also prompting American utilities to switch to coal this year, but their supply is constrained by miners that have cut capacity by 40% over the last six years. This past week, coal from the central Appalachia region rose $2.20 to $73.25, up 35% YTD and the highest level since May 2019. Thought bubble: "Investors are underappreciating the structural changes that have taken place in the North American energy landscape that could lead to these higher prices persisting for some time," wrote Lucas Pipes, an analyst with B. Riley Securities. Some are even calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050 (power demand is expected to increase 60% by then). "It is a cautionary message about how complex the energy transition is going to be," added Daniel Yergin, author of The New Map: Energy, Climate and the Clash of Nations. (32 comments)       Tech Six hours of darkness All of Facebook's (FB) services are back online after a change to its backbone routers disrupted services and the company's day-to-day operations. The stock is up 1.5% in premarket trading after plummeting nearly 5% yesterday when Facebook, Messenger, WhatsApp and Instagram all went down. The company said the problem affected internal services, which complicated its attempts to fix the problem, though there were reports that employees could not enter buildings. Quote: "Our engineering teams have learned that configuration changes on the backbone routers that coordinate network traffic between our data centers caused issues that interrupted this communication," Facebook said in a statement. "This disruption to network traffic had a cascading effect on the way our data centers communicate, bringing our services to a halt." Facebook is already under pressure following a 60 Minutes report that suggested it intentionally boosted politically charged or misleading content as engagement bait. Former Facebook employee and whistleblower Frances Haugen outed herself as the source of The Wall Street Journal's blistering "Facebook Files" series of exposes, saying the company prioritized profits over safety. Shares of the social media giant are even down nearly 15% from their recent highs and entered oversold territory after yesterday's drop, according to the relative strength index. Still under fire: Haugen heads before Congress today in hearing entitled "Protecting Kids Online." "When we realized tobacco companies were hiding the harms it caused, the government took action. When we figured out cars were safer with seatbelts, the government took action," she wrote in prepared remarks delivered to the Senate Commerce subcommittee. "I implore you to do the same here." (10 comments)       Stocks Volatility watch Not a day goes by without action in the stock market, especially during October. Shares of Big Tech companies slid on Monday, taking the S&P 500 to its lowest close since late July. In fact, the benchmark index is now more than halfway toward an official correction, though many of its components, especially tech, are already in a bear market due to tapering and higher rate concerns. Facebook (FB) was among the worst-performing S&P 500 stocks yesterday, slumping nearly 5% as Instagram, WhatsApp and its namesake platform suffered global outages. Snapshot: Earnings season is just a week away and some analysts don't like what they see under the hood for the third quarter. Inflationary pressures and supply chain problems are weighing on estimates, which could add to the list of speed bumps heading into year-end. Citigroup's Global Earnings Revision Index (a global measure of analyst upgrades minus downgrades of earnings expectations) is even on its way toward negative territory after hitting an all-time high in May. While the equity rout worsened overnight as futures headed even further south, volatile October is putting up a fight. Contracts linked to the Dow, S&P 500 turned 0.3% higher at 3:00 a.m. ET, while the Nasdaq tacked on 0.5%. There's still a lot to think about: Rosy economic data, like the latest payrolls number on Friday, could be a boon for the recovery, while the "buy the dip" strategy that has been in effect since March 2020 could continue to be a powerful force. "We do not believe the recent bout of de-risking will lead to sustained falls, and maintain the stance to keep buying into any weakness," said Marko Kolanovic, JPMorgan's chief global markets strategist. Over in Washington: Lawmakers are still trying to agree to raise or suspend the debt ceiling to avert a default on the national debt. The Treasury has warned that Congress must act before Oct. 18 or the U.S. will risk honoring its bond payments, but that hasn't stopped the politics. "Let me be clear about the task ahead of us: we must get a bill to the president's desk dealing with the debt limit by the end of the week. Period," Senate Majority Leader Chuck Schumer wrote in a letter to his Democratic colleagues. (4 comments)       Media Hollywood shutdown? Off-screen Hollywood workers have voted overwhelmingly to approve a strike against film and television production in the event they can't come to a last-minute deal in stalled talks with studios. Members of the International Association of Theatrical Stage Employees (IATSE) voted with a 98% margin (and 90% turnout) to approve the strike, should discussions with the Alliance of Motion Picture and Television Producers (AMPTP) fail to produce a new contract. All 36 locals, including 13 on the West Coast, as well as 23 around the country, voted in favor of the authorization. What they want: Negotiations over long on-set hours, wage scales, residuals for streaming and pension/health fund stability have been ongoing since May, according to Variety. The developments could also affect major and "mini-major" film studio stocks including Disney (DIS), Universal (CMCSA), Warner Bros. (T), Sony (SONY), Paramount (VIAC), Lions Gate (LGF.A), Eros STX Global (ESGC) and MGM Holdings (OTC:MGMB). "I hope that the studios will see and understand the resolve of our members," said IATSE President Matthew Loeb. "The ball is in their court. If they want to avoid a strike, they will return to the bargaining table and make us a reasonable offer." Otherwise, Loeb now has the power to pull 60,000 workers off sets, which would shut down production across the United States

Response from the producer reps: "The AMPTP remains committed to reaching an agreement that will keep the industry working. We deeply value our IATSE crew members and are committed to working with them to avoid shutting down the industry at such a pivotal time, particularly since the industry is still recovering from the economic fallout from the COVID-19 pandemic." (20 comments)

     

Today's Markets

In Asia, Japan -2.2%. Hong Kong +0.3%. China closed. India +0.48%.
In Europe, at midday, London +0.7%. Paris +0.8%. Frankfurt +0.3%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.4%. Crude +0.5% at $78.01. Gold -0.6% at $1756.20. Bitcoin +5.4% at $50104.
Ten-year Treasury Yield +2 bps to 1.5%

Today's Economic Calendar

8:30 Goods and Services Trade
8:55 Redbook Chain Store Sales
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 Fed's Barkin: "Fed Listens"
1:15 PM Fed's Quarles: "LIBOR Transition"

Companies reporting earnings today »

What else is happening...

Pfizer-BioNTech (PFE, BNTX) COVID-19 vaccine efficacy wanes after 6 months.

Cathie Wood's ARK Innovation (NYSEARCA:ARKK) hits four-month low; RSI says it's oversold.

New BofA crypto coverage includes JPMorgan (NYSE:JPM) and DraftKings (NASDAQ:DKNG).

In time for the chip crunch... GlobalFoundries (GFS) files for initial public offering.

Tusa at it again: GE (NYSE:GE) should be avoided given high expectations.

Mastercard (NYSE:MA), Visa (NYSE:V) dip after Twitter (NYSE:TWTR) adds Bitcoin.

Canada invokes 1977 treaty with U.S. in Enbridge Line 5 dispute.

Southwest (NYSE:LUV) is latest airline to require COVID vaccines for workers.

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