Energy & Commodities

Schachter’s Eye on Energy – Sept. 23rd

Josef notes that US oil production fell 200Kb/d last week due to renewed hurricane activity and declining WTI crude prices. And predicts a decline below US$30/b for WTI is likely during Q4/20.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data:. The EIA data on Wednesday September 23rd showed a production decline of 200Kb/d as Hurricane Sally hit Gulf coast production. Lower 48 production fell to 10.7Mb/d versus 10.9Mb/d in the prior week and down 1.8Mb/d from 12.5Mb/d last year. Commercial crude stocks fell 1.6Mb versus an expectation of a decline of 3.3Mb as net imports fell 267Kb/d or 1.9Mb on the week. Overall commercial crude stocks are 74.9Mb above last year or up by 17.8% as the glut continues. Total product demand recovered after the recent hurricanes to 18.4Mb/d, up 1.4Mb/d from the prior week. Inventories of gasoline fell by 4.0Mb/d as refinery runs fell 1.0 points to 74.8% from 75.8% in the prior week.

Overall product inventories remain high at 1.94Bb or 128.6Mb (6.6%) above the previous year level. Total product demand at 18.4Mb/d is down 2.76Mb/d from a year ago or by 13.0%. Gasoline demand rose a moderate 37Kb/d on the week to 8.5Mb/d but is down 831Kb/d or 8.8% from last year’s level of 9.35Mb/d. Jet fuel consumption fell by 12Kb/d to 935Kb/d and is down 565Kb/d or 37.7% from a year ago. With coronavirus cases picking up again in many US states the US coronavirus case load has risen to 6.9M cases with a new high of over 200K fatalities. The next few weeks will be critical as the colder weather and normal flu season starts. If we see a Wave Two situation as is being seen in France, Spain, the UK, South Korea and some places in China, then greater lockdowns will hit energy demand  and depress crude prices further. Cushing inventories were unchanged on the week at 54.3Mb above last year’s level of 40.9Mb.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a two rig increase in the US land rig count. The US rig count is now at 255 rigs working, but remains 71% lower than the 868 rigs working a year ago. The Permian basin lost one rig last week to 123 rigs working and is down by 71% from a year earlier level of 417 rigs. The US oil rig count fell by one rig to 179 rigs and is down 75% from 719 rigs working last year.

Canada saw a significant rise of 12 rigs to 64 rigs working last week as higher natural gas prices lifted activity. While a nice improvement it is still down from 119 rigs working at this time last year.

Conclusion: As we write this, WTI for October is up modestly over US$40/b. We don’t see this as lasting as inventories will start to build again once all US production returns on the Gulf and other places shut-in last week. In addition the increase in production by OPEC will at some point depress prices. It is likely with the rise in coronavirus cases and more business closures that energy demand will wane and OPEC may be forced to cut production once again. The psychological level of US$40/b is being tested and if we breach support at US$36.13/b then it is likely that any bad news on the vaccine or the US moving into a Wave Two situation would trigger WTI crude prices falling below US$30/b during Q4/20.

We see most energy stocks have significant downside risk. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for Q3 and likely Q4/20 for most energy and energy service companies should be short of the prior year’s level, which when reported will also add to the downside pressure. 

Hold cash and remain patient for the next low risk BUY window expected during Q4/20. 

The S&P/TSX Energy Index is now at the 69 level today. From the June high at 96 when we recommended profit taking, the index is down by 28%. We see much more downside over the coming months. The support is now at 66.99. When this is breached the next downside target for the index is around the 50 level. Further lows are likely in Q4/20 as tax loss selling is sizing up to be very nasty this year.

Our subscriber September SER Monthly will be out tomorrow and we cover the breakdown in the FAANG momentum stocks and why we see significant downside for the general markets. In the issue we also have a review of insider trading in the energy sector and which companies are seeing purchases by their key insiders.

Subscribe to the Schachter Energy Report and receive access to all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies in our two monthly reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  http://bit.ly/2OvRCbP to subscribe.

 

The Secret To Survival For Canada’s Oil Sands

Globally, there are a multitude of different answers (and even more non-answers) to the economic puzzle of how to account for and financially balance (aka pay for) negative environmental externalities. In Canada, the widely accepted answer to this issue is the polluter-pays principle, a core tenet so simple that a kindergartener could understand it, and indeed, could have written it.  Canada’s Globe and Mail explains it like this: “A central tenet of industrial development is the polluter-pays principle: Those who profit must pay for the mess generated by pulling resources from the ground or turning raw materials into goods. If you want to own the upside, you’ve got to own the downside.”

“The last thing Canadians should want are privatized profits, and socialized liabilities,” the Globe and Mail article asserts. Even in Canada, however, where the polluter pays principle is widely accepted and adopted, there were and are still many companies and projects that have managed to skirt the issue when it actually comes to payment. “There are many examples,” reports the Globe and Mail. “Take the Giant mine, near Yellowknife. It was one of Canada’s oldest gold mines, but after trading through various corporate hands numerous times, the last owner went bust and left behind 237,000 tonnes of arsenic trioxide. Giant is part of a $2.2-billion taxpayer-funded cleanup of eight abandoned northern mines that will take 15 years.” CLICK for complete article

Schachter’s Eye on Energy – Sept. 16th

Hurricane Sally has closed down over 1/3rd of US offshore Gulf of Mexico production and with this weeks decline in commercial crude oil stocks, WTI prices are lifting. Josef sees this as temporary as there is now declining US demand and OPEC is overproducing.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data:. The EIA data on Thursday September 16th showed a production recovery from the impact of Hurricane Laura on Gulf coast production. Lower 48 production rose by 900Kb/d to 10.9Mb/d (last week it rose 300Kb/d after the Hurricane passed by to 10.0Mb/d) but is still down 1.54Mb from 12.4Mb/d at this time last year. Production was once again curtailed as Hurricane Sally (a category two with 160 kph winds) hit the gulf coast and caused the shut-in of 3-6M boe/d of offshore oil and gas production. Commercial crude stocks fell 4.4Mb to 496.0Mb (versus a rise expected of 1.3Mb). Total commercial stocks are now at 417.1Mb or 78.9Mb or 18.9% above last year. The current high stock level and rising OPEC production has been putting pressure on WTI crude prices which fell to a low of US$36.13/b last week. Total product demand fell by 1.65Mb/d to 17.0Mb/d or down by 8.8%. Inventories of gasoline fell by 0.4Mb/d despite refinery runs rising by 4.0 points to 75.8% from 71.8% in the prior week. Distillate fuel oil inventories rose by 3.5Mb to 179.3Mb as the industry gets ready for winter 2020-2021.

Overall total stocks (excluding the Strategic Petroleum Reserve) remain high at 1.43Bb or 136.5Mb or 10.6% above the previous year’s level. Total product demand now at 17.0Mb/d is down 3.25Mb/d from a year ago or by 16.8%. Gasoline demand rose a modest 87Kb/d to 8.48Mb but is down 5.2% from 8.94Mb/d consumed last year. Jet fuel consumption rose 83Kb/d to 947Kb/d but is still down 959Kb/d or 50.0% from a year ago. With coronavirus cases picking up again as schools and as more businesses reopen, the US caseload has risen to 6.6M cases (6.4M cases last week) with a new high of 197K fatalities. The next few weeks will be critical for the forecasts as the colder weather and normal flu season starts. If we see a Wave Two situation as is being seen in France, Israel, South Korea and some places in China, then the increased lockdowns will hit energy demand even further and depress crude prices further. The US and World economies are facing fits and starts over the next few quarters as we see if there is a Wave Two and if vaccines can be available and widely distributed in the coming quarters.

World demand now seems to be around 91-92Mb/d now that the summer driving season is behind us. This is below the 100Mb/d demand seen just before the pandemic. Trafigura Group, the giant trading company and second largest independent oil trading entity,  is now forecasting that a glut in the oil market is about to occur as the demand recovery stagnates and OPEC raises production into year end taking us back into a surplus situation.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a two rig decline in the US land rig count. The US rig count is now at 254 rigs working, but remains down 71% from 886 rigs working a year ago. The Permian basin had a one rig loss last week to 124 rigs and is now down by 70% from a year earlier level of 419 rigs. The US oil rig count fell by one rig to 180 rigs but is down 75% from 733 rigs working last year.

Canada had no change of the week at 52 rigs working. This level is down 61% from 134 rigs working at this time last year.

OPEC September Monthly Oil Market Report: The monthly report came out this past Monday and showed that OPEC raised production by 763Kb/d to 24.045Mb/d. The biggest increases came from Saudi Arabia (+475Kb/d to 8.89Mb/d), UAE (+180Kb/d to 2.705Mb/d) and Kuwait (+127Kb/d to 2.288Mb/d). This after an OPEC increase of 1.04Mb/d in July to 23.283Mb/d versus 22.243Mb/d in June. This data does not include the increases from OPEC+ member Russia which also raised production in July and August. Of interest in the report was that OPEC lowered 2020 demand by 400Kb/d to 90.6Mb/d and lowered 2021 demand by 770Kb/d to 97.6Mb/d with the highest quarterly demand in Q4/21 at 99.3Mb/d – not expecting demand to return to pre-pandemic levels of over 100Mb/d next year.

OECD inventories are now reported at 109 days down from 124 days during Q1/20 but up from the normal 93-94 days or by nearly 300Mb of excess inventory, which needs to be worked down. The most damaging part of the report was that OPEC projected the call on OPEC for 2020 at 22.6Mb/d for the year. Current production in August of 24.0Mb/d is clearly in excess. As we see storage building once again that should put meaningful pressure on crude prices in the coming weeks unless OPEC reverses course and cuts back quotas and production levels once again.

Conclusion: As we write this, the nearby October WTI contract is at US$39.43/b up $1.13/b on the day as the weekly report showed a drawdown larger than expected and concern is building on how long US gulf coast production may be shut-in. WTI in the last three weeks has traded between US$43.78/b and US$36.13/b. Crude prices should continue to decline in September and October as US consumption normally declines by 1.0-1.5Mb/d when the summer driving season ends. Further pressure is coming from OPEC which raised production In July and August. They meet virtually tomorrow, September 17th, and if they don’t reverse their increases then prices are likely to erode further. The psychological level of US$40/b was breached last week and the low of last week at US$36.13/b is now the next breach level. The break last week of US$38.72/b has now occurred and confirmed a top for WTI crude. The next key support level for WTI is US$34.36/b and then US$30.72/b. If these are breached in the coming weeks then the energy sector will face renewed and increased downside pressure. We see most energy stocks have significant downside risk. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for Q3 and likely Q4/20 for most energy and energy service companies should be short of the prior year’s level which when reported will add to the downside pressure. 

Hold cash and remain patient for the next low risk BUY window expected during Q4/20. 

The S&P/TSX Energy Index is flat with last week’s 72 level as Hurricane  Sally and EIA report lifts WTI by US$3/b temporarily. From the June high at 96 (when we recommended profit taking) the index is down by 25%. We see much more downside over the coming months. The support at 74.67 has been breached and the next near term downside target is last week’s low of 69.40. Other downside targets in the coming weeks are 58.05 and then the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year. Use days of market strength to take profits and build up cash reserves.

Subscribe to the Schachter Energy Report and receive access to all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies in our two monthly reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  http://bit.ly/2OvRCbP to subscribe.

 

Futures Rebound, Oil Jumps After Relentless 3-Day Hammering

After three days of furious declines in the market culminating with the worst 3-day stretch for the Nasdaq since the financial crisis which entered a correction, stocks rebounded on Tuesday on the back of oversold conditions which approached the March puke…

… as traders, algos and Gen-Z BTFDers ignored news that AstraZeneca had paused covid vaccine trials after a participant in the UK developed an unexplained illness potentially crippling the race for a vaccine, and causing a “ripple as markets question recent vaccine optimism,” according SVB Leerink analyst Andrew Berens said. Then again, with futures some 20 points higher from Tuesday’s close, it doesn’t seem like pessimism will be allowed today as a 4-day selloff would be catastrophic for market sentiment, and as such look for a green close with the blessings of the Fed.

And with all eyes on the Nasdaq, it was imperative to find some support which is what the 50DMA has conveniently provided.

READ MORE

 

Schachter’s Eye on Energy – Sept. 2nd

Hurricane Laura has significantly impacted US production and demand with Crude prices pushing below US$42/b down 3% on the day. Due to the fall shoulder season we can expect weaker demand and prices for the next while.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data: The arrival of the first major Hurricane Laura (category 4), last week shut down most of the US offshore oil and natural gas production in the Gulf of Mexico. The EIA data on Wednesday September 2nd showed the significant impact on Gulf coast production and on overall US demand. Lower 48 production fell 1.2Mb/d to 9.7Mb/d due to the shut-ins. At the same time demand fell by 2.6Mb/d to 17.0Mb/d or down 13.5% in the week. With imports down by 1.0Mb/d or by 7.1Mb on the week as the gulf coast facilities were shut down, overall inventories of commercial stocks fell by 9.4Mb, with gasoline inventories down by 4.3Mb and distillate inventories down by 1.7Mb as refinery runs fell 5.3 points from 82.0% to 76.7%. Some of the gulf coast refineries have now reopened as the damage to facilities was less than feared.

Demand for all products fell 2.6Mb/d on the week to 17.0Mb/d and is down 4.6Mb/d or 21.5%  from last year’s level of 21.6Mb/d consumed. Gasoline demand fell 374Kb/d on the week to 8.8Mb/d and is down 685Kb/d or 7.2% from 9.5Mb/d consumed last year. Jet fuel demand fell 202Kb/d on the week to 940Kb/d and is down 939Kb/d or 50% from 1.9Mb/d consumed last year. Overall product stocks remain high at 1.94Bb or 136.7Mb (7.0%) above the previous year. These product inventories are way too high for this time of year as demand falls off with the end of the summer driving season. Next week should see a moderate swing back in the numbers as the hurricane impact ends. However once we are into mid-September we should see numbers that reflect what ongoing demand will be in this pandemic era.

Demand for energy will be impacted by the level of employment in the US. The ADP report out today showed private payrolls rose by 428,000 in August much below the 1.17M consensus. This should put the Friday August monthly nonfarm payrolls report under the microscope. The forecast is for a rise of 1.49M jobs and an unemployment rate of 10.0%. If there is a big miss (lower numbers) that would be a negative for the stock market and for energy prices.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed no change in the US rig count after a rise of 10 rigs in the prior week. The US rig count is now at 254 rigs working, but remains down 72% from 904 rigs working a year ago. The Permian basin had a decline of two rigs. This basin’s activity is now down by 71% from a year earlier level of 429 rigs. The US oil rig count fell by three rigs  to 180 rigs and now is down 76% from 742 rigs working last year.

Canada saw a reversal of the rise in rigs that we have seen for the last few weeks. Last week there was a decline of two rigs to 54 rigs working. This level is down 64% from 150 rigs working at this time last year. Canada’s recent improvement was due to the pick up in the liquids rich Montney and Duvernay natural gas basin activity. AECO today is C$2.56/mcf which is a very strong price for natural gas at this time of year. The recent hot weather and heavy demand for electricity for air-conditioning is the main reason for this nice price improvement. Natural gas prices should retreat now and may back off below C$2.00/mcf in the period up to the start of winter 2020-2021. This winter we see pricing exceeding C$3.00/mcf due to the decline in overall production levels in the basins and the low storage level in Canada.

Conclusion: As we write this, WTI for October is at US$41.65/b down US$1.11/b on the day and down US$1.77/b from US$43.42/b at this time last week. Crude prices should continue to decline in September after the long weekend as US consumption normally declines by 1.0-1.5Mb/d. Further pressure will come from OPEC as they raised production by 2.0Mb/d in August. Near term the psychological level of US$40/b will be important but for us a decline below US$38.72/b would confirm a top. Later it is likely that  a breach of US$34.36/b will put the sector under heavier pressure. As a result we see most energy stocks have significant downside risk. The most vulnerable companies are those energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for Q3 and likely Q4/20 for most energy and energy service companies should be short of the prior year’s level. 

Hold cash and remain patient for the next low risk BUY window expected during Q4/20. 

The S&P/TSX Energy Index is down nearly 4% on the week from the 82 level to below 79 now. We see much more downside over the coming months. A breach of 74.67 would set up the next downside target for this index to the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year.

The service sector is seeing major activity with Schlumberger exiting the frack business with a sale to competitor Liberty Oilfield Services. Others that have exited are Baker Hughes and Weatherford. Halliburton remains the largest player now. This consolidation is a positive as older equipment of lower horsepower will be removed from the industry. Over time when the price of crude recovers a smaller footprint frack industry will see better pricing and a strong recovery. In Canada, the battle for Calfrac well service continues. This side of the border is also likely to see consolidation and a smaller fleet going forward. We see the energy service sector doing better in 2021 when we are forecasting US$55/b for WTI up from US$40/b for this year.

Subscribe to the Schachter Energy Report and receive access to all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies in our two monthly reports. If you are an avid follower of the energy industry this should be of interest to you.

To get access to our research and to listen or watch the recent webinar please go to  http://bit.ly/2OvRCbP to subscribe.

(Note: Please share this comment . If you know someone who would enjoy more content like this please recommend they visit our website and sign up for our free eblast.)

 

Schachter’s Eye on Energy – Aug. 26th

This week Josef explains how Crude oil remains in the US$43/b range due to the incoming Hurricane Laura which has shut in a majority of the US offshore oil and natural gas production. As well as how heading into September we’ll see a build in inventories occurring and Crude prices declining.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data: Wednesday August 26th’s EIA data was supportive of the current WTI price of US$43.42/b. Commercial stocks fell 4.7Mb on the week, due to a big increase in exports of 1.2Mb/d or 8.6Mb. With strong demand for product last week motor gasoline inventories fell 4.6Mb, as consumption rose 531Kb/d to 9.16Mb/d due to strong end of summer driving season demand. Total product demand rose by 2.46Mb/d to 19.6Mb/d but is still down 2.6Mb/d from a year ago. Gasoline demand rose last week, but is still down from 9.9Mb/d last year. Distillate inventories rose by 1.4Mb as refinery runs rose by 1.1 points from 80.9% utilization to 82.0%. Jet Fuel demand rose 162Kb/d to 1.14Mb/d but is down 708Kb/d from consumption of 1.85Mb/d last year. US lower 48 production rose by 100Kb/d to 10.8Mb/d as industry activity picked up with a rising rig count and some low cost producers profitable at current WTI crude prices over US$40/b. Cushing inventories fell last week 300Kb to 52.4Mb from 52.7Mb in the prior week.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a rise of 10 rigs last week, the first increase in a long time compared to a decline of 3 rigs in the prior week. The US rig count is now at 254 rigs working, but remains down 72% from 916 rigs working a year ago. A bottoming process in activity in the US is now occurring. The Permian basin had all of the increase of 10 rigs following a rig loss of 5 rigs in the prior week. This basin’s activity is now down by 71% from a year earlier level of 434 rigs. The US oil rig count rose by 11 rigs  to 183 rigs and now is down 76% from 754 rigs working last year.

Canada saw a continuation of more activity with a rig count increase of 2 rigs (last week 7 rigs were added) to 56 rigs working. It is still down 60% from 139 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay natural gas basin activity. Canadian natural gas producer stocks have been strong performers and are outpacing oil stocks. AECO today is $2.54/mcf which is a very strong price for natural gas at this time of year. The hot weather and heavy demand for electricity for air-conditioning is the main reason for this nice price improvement.

Conclusion: As we write this, WTI is at US$43.42/b for the October contract up slightly on the day. Prices are holding up due to the end of summer driving season and Hurricane Laura which should hit the US Gulf Coast shortly. Energy firms according to Reuters have shut-in over 1.0Mb/d of offshore production as well as 1.2Bcf/d of natural gas. This is nearly 58% of US offshore oil production and 45% of US offshore natural gas production. Over 500,000 people have been ordered to flee low lying areas. This hurricane is expected to impact both Louisiana and Texas. The National Hurricane Center projects this to be a category three to maybe a category four level.

While this is near term positive for crude prices we still expect prices to fall after the September long weekend and US demand to decline by 1.0-1.5Mb/d, at the same time as OPEC is raising production by 2.0Mb/d. For crude we see a decline below US$38.72/b as confirming the top. Later, when we see a breach of US$34.36/b the sector will fall under much heavy pressure. Energy stocks have significant downside risk. The most vulnerable stocks are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index is flat with last week’s level of 82. We see material downside risk over the coming months. A breach of 74.67 would set up the next downside target for this index at the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year.

Subscribe to the Schachter Energy Report and receive access to all archived Webinars, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover.

To get access to our research and to listen to watch the recent webinar please go to  http://bit.ly/2OvRCbP to subscribe.

(Note: Please share this comment. If you know someone who would enjoy more content like this please recommend they visit www.mikesmoneytalks.ca and sign up for our free eblast.)