Energy & Commodities

Pirates Threaten Oil Operations In Gulf Of Mexico

There is increased threat of piracy in the southern Gulf of Mexico, with oil platforms and other installations a potential target, the U.S. government has warned.

“Armed criminal groups have been known to target and rob commercial vessels, oil platforms, and offshore supply vessels in the Bay of Campeche area in the southern Gulf of Mexico,” the State Department said in an updated travel advisory as quoted by Reuters.

There has been pirate activity in the Bay of Campeche for years, with the criminals posing as fishermen and attempting to board offshore platforms and vessels in the Gulf, according to reports in Mexican media. They were a headache for Mexico’s Pemex as they targeted its platforms, on several occasions succeeding in stealing things like pipes, electrical wiring, copper, and various equipment, as well as cash.

According to a report from January 2019, there was a 310-percent increase in pirate activity in the southern Gulf of Mexico over the three years to end-2018, from 48 attacks in 2016 to as many as 197 in 2018…CLICK for complete article

Schachter’s Eye on Energy – June 17th

This week Josef explains how the EIA had a third increase in total stocks which is creating a storage problem. As well as how the OPEC’s report out Wednesday the 17th showed significant non compliance and it is very likely crude will fall sharply in the near term.

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 28 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 June 17th’s EIA data was mostly bearish. The headline number of commercial crude stocks showed a rise of 1.27Mb versus the estimated 130K build. The Strategic Petroleum Reserve added 1.7Mb and now stands at 651.7Mb or nearly 38 days of current demand. The rise in commercial crude stocks would have been higher except net imports fell 245Kb/d or 1.72Mb on the week. Motor gasoline stocks fell 1.7Mb and Distillates fell by 1.4Mb. Overall stocks rose this week by 8.8Mb (compared to a rise of 11.9Mb last week). Total stocks are now up 141.8Mb over last year. Commercial crude oil stocks are now up 11.8% from 56.9Mb last year. Refinery runs rose 0.7% to 73.8% from 73.1% in the prior week. Cushing saw a decline of 2.6Mb to 46.8Mb as refinery activity consumed more crude.

US production of crude fell by a whopping 600Kb/d to 10.5Mb/d (all in the lower 48) and is now down 2.6Mb/d from the peak in mid-March at 13.1Mb/d. We are surprised by the large size of the shut-in. It is possible we are looking at data that removes production from bankrupt entities. There were a number of new filings last week for Chapter 11 insolvency.

Product supplied backed off from the strong consumption during the Memorial holiday weekend.  Total product usage fell by 283Kb/d to 17.29Mb/d and is down 3.53Mb/d or 17% from 20.8Mb/d consumed last year at this time. Finished motor gasoline demand fell by 31K to 7.87Mb/d, but is  down 21% from 9.93Mb/d last year. Jet fuel demand continues to rise modestly as more flights start up and consumption rose last week by 76Kb/d to 788Kb/d.  However, it is still 885Kb/d lower or 53% less than last year’s 1.67b/d.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline in the US rig count of 5 rigs (prior week down 17 rigs) to 279 rigs and down 71% from 969 rigs working a year ago. The Permian had a rig loss of 4 rigs (last week down 7 rigs) or down by 69% from a year earlier level of 441 rigs. The US oil rig count fell by 7 to 199 rigs (down 16 rigs last week) and down 75% from 788 rigs working last year. Canada’s rig count was flat at 21 rigs working but is down 80% from 107 rigs working at this time last year. The rate of weekly rig releases has clearly decelerated and we are close to the bottom for this key energy service sector activity indicator. Last week we saw the first green shoot with the Haynesville showing a rig count increase of two rigs to 33 rigs.

OPEC Monthly Data: OPEC today released their June 2020 monthly issue. They see demand at 81.3M/d in Q2/20 rising nearly 11Mb/d to 92.3Mb/d in Q3/20. Their big assumption is that China demand rises to 12.55Mb/d in Q2/20 from 10.27Mb/d in Q1/20 and OECD demand rebounds meaningfully. We suspect this may be high due to weak consumer demand in the OECD and the recent lock-down in Beijing due to the recent Covid-19 breakout. The report shows non-OPEC production falling 4.1Mb/d from 66.5Mb/d in Q1/20 to 61.4Mb/d in Q2/20. This fits with what we are seeing from the weekly EIA data and the reports from Canada. OPEC cut overall production in May 2020 by 6.3Mb/d to 24.2Mb/d with the Saudi’s taking the largest cutback at 3.16Mb/d. UAE helped with a 1.36Mb/d cut as did Kuwait with a 921Kb/d cut. As we suspected, other OPEC countries did not partially or fully meet their quota. Angola cut only by 33Kb/d to 1.28Mb/d, Iran raised production by 5Kb/d to 1.978Mb/d, Iraq cut only 340Kb/d versus the over 1.0Mb/d cut allocated and Nigeria cut by only 185Kb/d to 1.59Mb/d. Overall compliance appears to be 2-3Mb/d less than needed. OPEC in the report shows that the call on OPEC in Q2/20 is 14.6Mb/d and with production of 24.2Mb/d there is still an inventory build of 9.6Mb/d. So the deal last week to extend the cuts to the end of July does nothing to balance supply and demand. In the OPEC report they show Q2/20 demand at 81.3Mb/d, non-OPEC production at 61.4Mb/d, OPEC NGL’s at 5.3Mb/d leaving a call on OPEC of only 14.6Mb/d. They spin their positive story showing demand rising 11.0Mb/d to 92.3Mb/d in Q3/20 with non-OPEC production falling by 2.1Mb/d in Q3/20 to 59.3Mb/d. Under this view they show demand for OPEC crude rising to 27.8Mb/d and inventories worldwide starting to shrink. Our biggest disagreement is that we don’t buy their large increase in world demand for Q3/20 that they forecast.

Conclusion: As we write this, WTI is at US$37.43/b for the July contract (down US$0.95/b on the day) due to the overall inventory build. After a robust short covering rally of nearly 90% from the April low to US$40.44/b on Monday, crude prices have now rolled over and are down over 7%. We see a decline below US$30/b as the line in the sand for crude oil bulls (US$34.36/b next breakdown level). The breach of US$30/b should start the next phase of worry for energy bulls and restart aggressive selling of energy and energy service stocks. Much lower levels are expected once we get into the fall and the wage support programs by the governments end, and layoffs pick up and we see more bankruptcies. In addition this is also the window for the next expected Covid-19 wave. The energy and energy service companies with the most downside are those with high debt loads, high operating costs, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier barrels. Hold cash and remain patient for the next low risk BUY window as we saw in mid-March. If over-invested take appropriate defensive action.  

The short covering rally of the last few weeks took the S&P Energy Bullish Percent Index from 0% on March 9th to 100% two weeks ago (84.6% now after stock market decline of the last two weeks). As the general stock market has declined, we expect to see the energy sector fall heavily as well. The Energy Bullish Percent Index is likely in this situation to fall to below 10%, providing the next low risk BUY signal. For the S&P/TSX this means a decline to below 40 for the Index, or nearly a two for one sale – OUCH! In  a few days we see the next general market plunge starting. Downside for the Dow Jones Industrials in the near term 22,800 with much lower levels in July/August.

The S&P Energy Index today is at 78.82 (down 11% from last week’s level of 88.60) and down from the recent bear market rally high of 96.07 (Index down 18% from this recent high of two weeks ago). Be prepared for significantly lower energy and energy service stock prices in the coming weeks. Next downside breach is 76.50 (one bad market day away).

High risk tolerant speculative ownership of crude oil futures continues to rise crude. Last week speculators owned a net long position of 572Mb up modestly from 570Mb the week before. Commercials are adding more aggressively to positions and are now short 617Mb up from 605Mb the week before. Speculators are usually wrong and we expect them to get smacked hard once the current stock market decline has massive intermarket margin calls. At the next bottom in crude prices It is possible that commercials will move to net long position..

Our June SER Monthly Report will come out tomorrow. We go over the current market conditions and our key reason why we see an imminent breakdown in the overall stock markets that will drag energy stocks down as well. In our corporate update section we cover one of our favourite international ideas which just successfully completed its debt refinancing with a two year extension and covenant relief.

Subscribe to the Schachter Energy Report and receive access to our Webinar from Thursday May 28th, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 28 companies that we cover.

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

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The Most Dramatic Year In The History Of Oil

There are very few industries in the world that have been hit as hard or are set to face as many consequences as the oil and gas industry in 2020. In a recent report, Fitch Ratings forecast that oil and gas exploration and production companies would lose $1.8 trillion in revenues this year, which is six times more than the retail sector is set to lose. But the long-term consequences are going to be even more devastating. Perhaps the most visible change taking place in the oil and gas industry is the drastic cost-cutting measures being taken by the oil majors. BP has been forced to cut 10,000 jobs, or 15 percent of its workforce, as it tries to control costs in this new low oil price environment. Schlumberger had already slashed salaries and cut jobs in late March, while Shell and Chevron have announced plans to shrink their workforces…CLICK for complete article

Schachter’s Eye on Energy – June 10th

This week Josef explores why crude oil inventories grew last week and why prices are now retreating. Also he discusses how the OPEC deal on the weekend is a non deal due to compliance issues.

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 28 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 June 10th’s EIA data was mostly bearish. The headline number of commercial crude stocks showed a rise of 5.7Mb versus the estimated 1.7Mb draw. The rise was due to net imports rising by 1.04Mb/d or 7.3Mb on the week. Imports rose by 685Kb/d and exports fell by 355Kb/d. Motor gasoline stocks rose by 0.9Mb and Distillates by 1.6Mb. Overall stocks rose 11.9Mb last week. Total stocks are now up 132.5Mb over last year. Commercial crude oil stocks are up 52.6Mb above last year or by 10.8%. We expect that there will soon be worry again about insufficient storage with these sizable weekly total stock increases. Refinery runs rose to 73.1% from 71.8% in the prior week as the Memorial Day long weekend demand raised consumption..

US production of crude fell by 100Kb/d to 11.1Mb/d and is now down 2.0Mb/d from the peak in mid-March at 13.1Mb/d. We are nearing our expected level of 11.0Mb/d that we have been forecasting for the summer production level. However, there is now more talk about some US energy companies bringing back hundreds of thousands of barrels of shut-in low cost production now that crude is in the high US$30’s/b. If so, this would exacerbate the inventory glut as these volumes return. Cushing saw a decline of 2.3Mb to 49.4Mb as refinery activity consumed more crude.

The most bullish part of the report was that overall product consumed rose during the Memorial holiday weekend by 2.5Mb/d to 17.6Mb/d, but is still down 3.5Mb/d or 17% from 21.1Mb/d consumed last year at this time. Finished motor gasoline demand rose by 352Kb/d on the long weekend to 7.9Mb/d, but is still down 20% from 9.9Mb/d last year. Jet fuel demand rose during the heavy holiday travelling week by 328Kb/d to 713Kb/d. However, it still was 1.1Mb/d lower or 60% less than last year’s 1.8Mb/d, as travellers remain reluctant to get on planes while there is no cure for Covid-19. We should see weaker consumption numbers in the coming weeks.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline in the US rig count of 17 rigs (prior week down 17 rigs) to 284 rigs and down 71% from 975 rigs working a year ago. The Permian had a rig loss of 7 rigs (last week down 14 rigs) or down by 68% from a year earlier level of 446 rigs. The Eagle Ford had a large rig loss  of 9 rigs to 13 rigs and was down by 82% from a year earlier level of 74 rigs. The US oil rig count fell by 16 rigs to 206 rigs (down 15 rigs last week) and down 74% from 789 rigs working last year. Canada had a rise of one rig and the count now is at 21 rigs working but is down 80% from 103 rigs working at this time last year. The rate of weekly rig releases is now decelerating and we are getting close to the bottom for this key energy service sector. We expect to start seeing weeks of rising activity over the coming months but it should stay at low levels under 300 rigs for the US and under 50 in Canada until we see sustained crude prices over US$50/b; which are not likely until Q4/20.

OPEC Deal – Compliance Suspect: OPEC on the weekend came up with an extension of one month to the end of July for their current 9.7Mb/d production cut deal with Russia. However Iraq, Iran and Nigeria are producing whatever they can and are not meeting their OPEC quota levels. In addition Libya which has been shut in due to an ongoing civil war is now getting ready to bring production back on line as they are desperate for funds. The Russia’s Energy Ministry now sees the global surplus at >7Mb/d (Reuters report) so world storage inventories will continue to grow in June and likely in July. OPEC loves the talk of deals but does not walk the walk with its actions.The rally of the last few weeks on a longer deal and greater production cuts has come to naught.

Conclusion: As we write this, WTI is at US$38.60/b for the July contract (down US$0.34/b on the day) due to the overall inventory build. After a robust short covering rally of nearly 90% from the April low to US$40.44/b on Monday, crude prices are now rolling over. Some beaten down energy and energy stocks saw rises of 30-40% over the last week but this short covering and speculative buying is ending now that crude prices are reversing. We see a decline below US$30/b as the line in the sand for crude oil bulls. The breach of US$30/b should start the next phase of worry for energy bulls and restart aggressive selling of energy and energy service stocks. Much lower levels are expected once we get into the fall and the wage support programs by the US government end, and layoffs pick up and we see more bankruptcies. In addition this is also the window for the next expected Covid-19 wave. The companies with the most downside are those with high debt loads, high operating costs, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier barrels. Hold cash and remain patient for the next low risk BUY window as we saw in mid-March. If over-invested take appropriate action.  

The short covering rally of the last few weeks took the S&P Energy Bullish Percent Index from 0% on March 9th to 100% yesterday. As the general stock market declines in the coming weeks, we expect to see the energy sector fall heavily as well. The Energy Bullish Percent Index is likely in this situation to fall to below 10%, providing the next low risk BUY signal. For the S&P/TSX this means a decline to below 40 for the Index. The S&P Energy Index today is at 88.60 and is down from the recent bear market rally high of 96.07. So far the energy index is down 8%. Be prepared for significantly lower energy and energy service stock prices in the coming weeks. A breach of 80 will cause mayhem for high risk entities.

Speculative ownership of crude oil futures continues to rise chasing crude, with many buying later dated contracts after the May expiry problem. Last week speculators owned a net long position of 570Mb up from 548Mb the week before. Commercials are now short 605Mb up from 580Mb the week before. We expect that the current market decline will have massive intermarket margin calls that will knock the speculator’s position down to below 200Mb net long at the next bottom in crude prices. It is possible that commercials will move to net long positions in this event.

Our June SER Monthly Report will come out next Thursday. We go over the current market conditions and why we see an imminent breakdown in the overall stock markets that will drag energy stocks down as well.

Subscribe to the Schachter Energy Report and receive access to our Webinar from Thursday May 28th, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 28 companies that we cover.

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

 

Goldman Turns Bearish On Oil Again

 

Goldman’s energy analyst Damien Courvalin, who on May 1 turned bullish on oil (after being one of the first in mid-March to correctly warn that negative oil prices are coming) expecting a jump in prices from record lows due to a sharp reversal in supply/demand dynamics in the oil market, has agreed with us, and in a note discussing the latest fundamental drivers in the oil market, says it has turned “short-term bearish” on oil, for the following four reasons:

i) the unprecedented collapse in oil margins to unprecedented lows (which is reflective of both over-valued crude prices as well as a more moderate demand recovery);

ii) demand expectations are running ahead of a more gradual and still highly uncertain recovery;

iii) shale and Libyan shut-in production are coming back online, and

iv) prices are at levels where OPEC supply cuts should ease and Chinese purchases slow.

Full Story

 

What’s Holding Natural Gas Prices Back?

The oil markets have been enjoying a period of sustained rally, thanks to a stream of positive factors including somewhat successful compliance to agreed production cuts, a partial rebound in oil demand as well as growing optimism about a possible extension to the OPEC+ cuts.  Brent prices briefly touched $40/barrel on Monday, a level they last touched several months ago with WTI looking to also breach the psychological level if OPEC+ signs off on extensions when it reconvenes on June 10.

The same, however, can hardly be said about the natural gas situation.

Natural gas prices are still flirting with decade-lows courtesy of a stubborn supply overhang thanks to a deluge from shale fields and weak demand due to unfavorable weather.

In fact, the supply glut has become so bad that even a leading producer turning off the taps has done little to boost prices. Natural gas prices have barely barged after Russia’s national oil producer (NOC), Gazprom PJSC, cut off shipments through a key link via Belarus and Poland. CLICK for complete article