Energy & Commodities

Schachter’s Eye on Energy – Aug 20th

This week Josef comments on how US product demand fell 2.2Mb/d to 17.2Mb/d last week as reversal of re-openings occurred in high Covid-19 case States and how US exports of crude and product are waning (down 1.0Mb/d last week to 2.1Mb/d) as trade war issues with China and other weak economies slow imports from US.

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 August 19th’s EIA data was mostly bearish. The most bearish piece was that total product demand fell by 2.2Mb/d to 17.2Mb/d or down by 11% on the week as many States tightened up re-openings due to rising Covid-19 case loads, and a rising percent of tests being positive. Motor Gasoline demand fell 253Kb/d to 8.63Mb/d and Jet Fuel fell a modest 8Kb/d to 980Kb/d. However compared to last year overall product supplied is down 3.8Mb/d from 21.0Mb/d or down 18%, Motor Gasoline is down 997Kb/d from 9.6Mb/d or down over 10% and Jet Fuel demand is down 929Kb/d from 1.91Mb/d, or 49%. With the summer driving season over in just two weeks demand will decline further. Inventories fell 1.6Mb on the week but came in lower than the forecast of a decline of 2.7Mb/d. Exports fell sharply or by 1.0Mb/d from 3.1Mb/d to 2.1Mb/d as China did not buy much and other buyers were not active due to slowdowns in their economies due to new outbreaks of Covid-19 and its mutations. Motor Gasoline inventories fell by 3.3Mb on the week while distillates rose by 0.2Mb. Total stocks excluding the SPR fell 2.8Mb last week. Total stocks are now 139.0 Mb or 7.1% above last year. Refinery runs fell 0.1% to 80.9%. Cushing saw a decline of 0.6Mb to 52.7.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline of 3 rigs (last week down by 4 rigs) in the US rig count to 244 rigs working and down 74% from 935 rigs working a year ago. A bottoming process in activity in the US may be underway. The Permian basin had a rig loss of 5 rigs this week following a 2 rig loss last week. This basin activity is down by 73% from a year earlier level of 441 rigs. The US oil rig count fell by 4 more rigs to 172 rigs and is down 78% from 770 rigs working last year. Canada’s on the other hand saw a rig count increase of 7 rigs (last week 2 rigs were added) to 54 rigs working. It is still down 62% from 142 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay basin activity. Tourmaline Oil, Canada’s largest natural gas producer alone is using 10 rigs.

Conclusion: As we write this, WTI is at US$42.55/b for the September contract down  US$0.38/b on the day. 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 heavy pressure. Energy stocks are ahead of the fundamentals and 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. Raise and hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index has fallen over the last week from 85 to 82 or down 3.5% on the week with the decline mainly in oily names. Natural gas stocks have held their own and some have risen as AECO prices have strengthened (AECO today $2.38/mcf) and NYMEX is US$2.41/mcf. The gain is due to the very hot weather and the increase in electricity usage for air-conditioning. We continue to prefer natural gas and natural gas with liquids investment ideas over heavier barrel oil companies. However, after the recent strong performance a correction phase should occur and give us another great buying opportunity during Q4/20.

We now 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.

We held our quarterly webinar for subscribers on August 13th at 7PM MT for 100 minutes. Topics included:

  • Overview of the general stock market and why we remain cautious on crude prices in the near term.
  • Results for Q2/20 from energy and energy service companies that have reported – some are decent and some have disappointed. We do not cover individual company information in the ‘Eye on Energy’ complimentary product so if you want this company analysis please become a subscriber.
  • OPEC cutbacks – have they managed to balance world supply and demand?
  • If Joe Biden wins the Presidency – what does that mean for the Energy sector in Canada and the US. Who wins and who loses?
  • Which energy and energy services stocks have the most downside risk if crude prices retreat below US$30/b?
  • We held two Q&A sessions for webinar attendees to ask questions about the topics covered as well as issues of their interest.

Subscribe to the Schachter Energy Report and receive access to this Webinar, 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 and to listen to the recent webinar please go to  http://bit.ly/2OvRCbP to subscribe.

 

Bullish Sentiment Is Building In Oil Markets

Oil prices rose to a five-month high this week on hopes that the economy is reviving. New coronavirus cases have fallen back in previously hard-hit states such as Florida and Arizona. At the same time, the U.S. shale industry is not rebounding, adding to bullish momentum on the supply side of the equation. Prices fell back in early trading on Tuesday.

Trump admin approves Alaska drilling. The Trump administration approved an oil leasing program for the Alaska National Wildlife Refuge (ANWR), opening up 19 million acres of wilderness for drilling for the first time. The Interior Department is aiming to finalize the process to make it difficult to undo if the election results in a change of administration. However, investors question the profitability of the enterprise, and several major banks, including Goldman Sachs and Wells Fargo, have ruled out financing any ANWR drilling…CLICK for complete article

Schachter’s Eye on Energy – Aug 12th

This week Josef discusses why US crude production is falling off at a sharper pace as the low 48 saw volumes decline by 300Kb/d to 10.7Mb/d last week. As well as why offsetting this OPEC raised production by 980Kb/d in July and plans to add 2.0Mb/d this month. As we enter into fall he feels we should start to see crude inventories start to rise again destabilizing crude prices.

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 August 12th’s EIA data was mixed. The most bullish piece for crude prices was the 300Kb/d decline in US domestic production from 11.0Mb/d to 10.7Mb/d. This level is 1.6Mb/d lower than last year’s 12.3Mb/d while the industry retrenches as low prices impede spending. The high profile commercial crude stocks number showed a decline of 4.5Mb (forecast of a decline of 2.9Mb) reflective of net imports which fell 713Kb/d or 5.0Mb on the week. Motor Gasoline inventories fell 0.7Mb while Distillates fuels fell by 2.3Mb on the week. Overall petroleum stocks fell on the week by 8.4Mb. Total stocks are now 148.2Mb or 7.6% above last year. Refinery runs rose 1.4% to 81.0% from 79.6% in the prior week as summer demand kept refineries busy. Cushing saw a rise of 1.3Mb to 53.3Mb compared to 44.8Mb at this time last year.

The summer driving week was quite strong as it rose 1.46Mb/d to 19.37Mb/d versus a decline of 1.18Mb/d in the prior week. However it is still down 12% from last year’s level of 22.06Mb/d. Finished Motor Gasoline demand saw a rise of 266Kb/d last week to 8.88Mb/d but is still down 11% from 9.93Mb/d last year. Jet Fuel demand fell 23Kb/d last week to 987Kb/d. It is down 1.05Mb/d or 51% from last year’s 2.02Mb/d, as the reticence to fly continues.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline of 4 rigs in the US rig count to 247 rigs working and down 74% from 934 rigs working a year ago. A bottoming process in activity is underway. The Permian basin had a rig loss of 2 rigs this week following a two rig loss last week. This basin activity is down by 73% from a year earlier level of 444 rigs. The US oil rig count fell by 4 to 176 rigs and is down 77% from 764 rigs working last year. Canada’s rig count rose by 2 rigs (last week 3 rigs were added) to 47 rigs working but is still down 66% from 140 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay basin activity.

OPEC Monthly: OPEC released their August Monthly Oil Market Report today and they are optimistic that world consumption will rise from 81.8Mb/d in Q2/20 to 92.1Mb/d in Q3 and then to 95.8Mb/d in Q4/20. With US demand alone being 2.7Mb/d lower than last year we expect their forecast is optimistic. Now that there is a pick up in coronavirus cases around the world, crude demand should weaken. In addition, once we get past the September long weekend and into the fall seasonal slowdown, demand historically falls by 1.0 – 1.5Mb/d. In their report they noted that OPEC raised production by 980Kb/d to 23.17Mb/d in July. The biggest increases were from Saudi Arabia (866Kb/d to 8.41Mb/d), UAE (98Kb/d to 2.43Mb/d), Kuwait (73Kb/d to 2.16Mb/d) and Iraq (39Kb/d to 3.75Mb/d). The 2.0Mb/d addition by OPEC starting August 1st may prove detrimental to the industry and current crude prices. In their report they show the call on OPEC for 2020 at 23.4Mb/d so if their production rises to 25.2Mb/d this month then we may see inventories in storage start to rise again in September once these additional barrels hit the market. We expect this excess will dampen the current crude price level.

Conclusion: As we write this, WTI is at US$42.21/b for the September contract up US$0.60/b on the day. 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 heavy pressure. Energy stocks are ahead of the fundamentals and 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. Raise and hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index has risen over the last week to the 85 level as crude oil and AECO prices have strengthened (AECO today $2.11/mcf), but is down over 11% from the early June high of 96 when we recommended taking profits in non-taxable accounts from the great upside move from mid-March. We signalled an Action Alert BUY on March 13th and the stocks since the recommendation have done superbly. We now 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.

We hold our quarterly webinar for subscribers tomorrow Thursday August 13th at 7PM MT for 90 minutes. Topics will include:

  • Overview of the general stock market and why we remain cautious on crude prices in the near term.
  • Results for Q2/20 from energy and energy service companies that have reported – some are decent and some have disappointed. We do not cover individual company information in the ‘Eye on Energy’ complimentary product so if you want this company analysis please become a subscriber.
  • OPEC cutbacks – have they managed to balance world supply and demand?
  • If Joe Biden wins the Presidency – what does that mean for the Energy sector in Canada and the US. Who wins and who loses?
  • Which energy and energy services stocks have the most downside risk if crude prices retreat below US$30/b?
  • We will have two Q&A sessions for webinar attendees to ask questions about the topics covered as well as issues of their interest.
  • For subscribers please send in your last minute questions ASAP so we can prepare detailed responses.

Subscribe to the Schachter Energy Report and receive access to our Webinars, 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.

Next week our ‘Eye on Energy’ will be produced on Thursday August 20th due to holiday travel.

To get access to our research and to join tomorrow’s webinar please go to  http://bit.ly/2OvRCbP to subscribe.

 

Schachter’s Eye on Energy – Aug 5th

This week Josef talks about how energy demand continues to weaken in the US and we can expect Crude prices to roll over in the near term and how energy and energy stocks are overvalued based on current circumstances.

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 August 5th’s EIA data was mixed with some positive and some negative data. The headline positive number was that of commercial crude stocks which showed a bullish decline of 7.4Mb (forecast of a decline of 3.0Mb). Motor Gasoline inventories rose by 0.4Mb while Distillates fuels rose by 1.6Mb on the week. Overall petroleum stocks fell on the week by 2.1Mb (compared to a decline of 6.5Mb last week). Total stocks are now up 171.6Mb or 8.9% over last year. Refinery runs rose 0.1% to 79.6% from 79.5% in the prior week as summer demand kept refineries busy. Cushing saw a rise of 600Kb to 45.6Mb to 52.0Mb. US production of crude fell 100Kb/d to 11.0Mb/d and is down 1.3Mb/d from last year.

The most bearish part of the report was that total product supplied fell 6% on the week or 1.18Mb/d, to 17.9Mb/d (prior week 19.1Mb/d of consumption) and is down 17% from last year’s level of 21.48Mb/d. Finished Motor Gasoline demand fell by 2% or 193Kb/d, to 8.62Mb/d, and is  down 11% from 9.65Mb/d last year. Jet Fuel demand fell 13Kb/d to 1.01Mb/d.  It is down 801Kb/d lower or 44% less than last year’s 1.81Mb/d as the reticence to fly continues. The pick up in areas requiring stay-at-home procedures and lack of comfort with travel have lowered consumption.

The rise in Covid-19 cases to record levels and the need to close down access to beaches and restaurants in high case areas has lowered consumption. There are now nearly 157,000 deaths in the US from this pandemic. With the US having 4% of the world’s population and 25% of the fatalities this is a deplorable outcome. The next major issue is the reopening of schools and if they will be in person or from at home. Chicago today announced that the first semester would be all at home. Chicago has the third largest school system in the US.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed no change  in the US rig count with 251 rigs working but down 73% from 942 rigs working a year ago. A bottom in activity is now occurring. The Permian had a rig loss of 2 rigs (last week a rise of 2 rigs) but is still down by 72% from a year earlier level of 442 rigs. The US oil rig count fell by 1 to 180 rigs and is down 77% from 770 rigs working last year. Canada’s rig count rose by 3 rigs (last week 10 rigs were added) to 45 rigs working but is still down 67% from 137 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay activity.  With a world-wide crude glut and demand weak due to the ongoing virus, the 2.0Mb/d addition by OPEC starting August 1st may prove detrimental to the industry recovery.

Conclusion: As we write this, WTI is at US$42.09/b for the August contract up modestly on the day after the commercial stock decline information was seen as a positive. The current enthusiasm should wane in the coming days as the weekly US jobs report comes out tomorrow. On Friday we get the July Non-Farm Payrolls report which could also be quite negative. For crude we see a decline below US$38.72/b (last week’s low) as confirming the top. Later when we see a breach of US$34.36/b the sector will fall under heavy pressure. Energy stocks are ahead of the fundamentals and 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. If over-invested hopefully you took appropriate defensive action from our previous warnings.  

The S&P/TSX Energy Index today is at 79.56 and is down over 17% from the early June high of 96.07 when we recommended taking profits in non-taxable accounts from the great upside move from mid-March. We had signalled the Action Alert BUY on March 13th and the stocks since the recommendation have done superbly. We now see significant downside risk again. A breach of 71.76 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.

We are holding our quarterly webinar for subscribers next week Thursday August 13th at 7PM MT for 90 minutes. Topics will include:

  • Overview of the general stock market and why we remain cautious on crude prices in the near term.
  • Results for Q2/20 from energy and energy service companies that have reported – some are decent and some have disappointed. We do not cover individual company information in the ‘Eye on Energy’ complimentary product so if you want this company analysis you will need to become a subscriber.
  • OPEC cutbacks – have they managed to balance supply and demand.
  • If Joe Biden wins the Presidency – what does that mean for the Energy sector in Canada and the US.
  • We will have two Q&A sessions for webinar attendees to ask questions about the topics covered as well as issues of their interest.
  • For subscribers please send in your questions ASAP so we can prepare detailed responses.

If you would like to join this event please go to our subscriber page and become either a quarterly or annual subscriber to join this timely event.

Subscribe to the Schachter Energy Report and receive access to our Webinars (next one webinar Thursday August 13th), 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.

Schachter’s Eye on Energy – July 29th

This week Josef comments on how US product consumption rose last week with the help of decent summer weather.

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 July 29th EIA weekly data was positive as summer energy demand rose and net imports fell sharply. The headline number for commercial crude stocks showed a decline of 10.6Mb versus the forecast of a decline of 0.4Mb. Net imports fell by 1.01Mb/d or by 7.1Mb in the week, which if it had been flat on the week, would have meant a build of only 3.5Mb. Motor Gasoline inventories rose by 0.7Mb as refinery utilization rose 1.6% to 79.5% from 77.9%. Overall stocks fell by 6.5Mb. Cushing saw its fourth weekly increase with a rise of 1.3Mb to 51.4Mb. US production of crude held steady at 11.1Mb/d.

Product supplied/consumed rose 8% to 19.1Mb/d or by 1.44Mb but is still down 2.2Mb/d or 10% from last year’s level of 21.3Mb/d. Finished motor gasoline demand rose 3% on the week to 8.81Mb/d or up by 259Kb/d on the week but is still down 8% from 9.56Mb/d last year. Jet fuel usage fell 55Kb/d last week to 1.02Mb/d and is still down 870Kb/d or 46% less than last year’s 1.89Mb/d.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline in the US rig count of 2 rigs (prior week down 5 rigs) to 251 rigs and down 73% from 946 rigs working a year ago. The US oil rig count rose by 1 to 181 rigs (down 1 rig last week) and down 77% from 776 rigs working last year. The Permian started to show a recovery with two rigs being added and now have 126 rigs working. This is still down 72% from a year ago when 443 rigs were working. Three more rigs for US natural gas were taken out last week and this rig count is down 60% from last year’s level of 169 rigs to 68 rigs.

A more optimistic scene is the recovering Canadian sector. Canada’s rig count rose by 10  (up by 6 rigs last week) to 42 rigs working but is still down by 77% from 127 rigs working at this time last year.

US companies have announced that they will restart production given the current US$40/b prices and this week’s data hsa yet to show this return of production. We are in the bottoming process for the service industry but we may not see decent demand growth until winter 2020-2021 when a vaccine for the coronavirus is available.

For Canada, the Petroleum Service Association of Canada (PSAC) lowered its forecast for drilling in Canada this year from 3,100 (April forecast) to 2,800 now. Provincially they see 1,360 wells in Alberta (prior 2,155 or down 37%), Saskatchewan 1,055 wells (prior 1,795 or down 41%), BC 285 wells (prior 345 or down 17%) and Manitoba 80 wells (down from 190 wells or down 58%).

Conclusion: As we write this, WTI is at US$41.29/b for August, down just a dime from last week when we wrote this. The energy market is getting comfort from other commodity boards (precious metals and lumber) and the hope that a coronavirus vaccine will be ready by year end (as more pharmaceutical companies announce progress) and that a new US stimulus package of US$2-3T is approved by Congress by Friday of this week. We are skeptical a fiscal deal can come together before the heated election campaign season gets fully underway. If no funding for the unemployed gets passed this week and no forbearance for renters who face eviction for non-payment of rent, then we face a deteriorating economic condition in the US with rapidly rising unemployment, business closures and rising tensions in the streets as the election cycle unfolds.

For WTI crude we see a decline starting shortly (US$38.54/b next breakdown level). Longer term we see a breach of US$30/b triggering aggressive selling of energy and energy service stocks. Demand for energy should weaken as layoffs should pick up in August. We also expect to see more corporate bankruptcies as Q3 unfolds.

The energy and energy service companies with the most downside are those with high debt loads, high operating costs, declining production, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier crude barrels. Results for Q2 have started to come out this week and so far have been disappointing with negative comparison and rising debt levels. The bulk of the energy and energy service companies reports come out in August.

Hold cash and remain patient for the next low risk BUY window. If over-invested hopefully you have already taken appropriate defensive action.  

The S&P/TSX Energy Index is at 76.64 down nearly 4 points or 4% from last week’s level of over 80. This Index is down 20% from the early June high of 96.07 when we turned bearish again. The next downside short term support is 71.76 and then we see downside to the 50 level. For the S&P/TSX Energy Index we see a bottom at the 32-36 level as the next major bottom low. Downside for the Dow Jones Industrials to breakdown is 24,800 (now 26,446) with much lower levels  in Q3/Q4, 2020.

Our August Interim Update comes out next Thursday August 7th and we go over five companies on our Coverage List that will be reporting by our cut-off date of July 31st. We update our bearish views on the general stock market. The underpinnings of the recent market strength are the handful of tech-heavy NASDAQ “at home” beneficiaries and these are now showing signs of weakness.The rest of the market has been showing internal deterioration for some time. We expect a near term market breakdown.

Once the general market plunges and we get closer to the climactic bottom we will profile our best Table Pounding energy and energy service BUY ideas to consider owning by subscribers and add new ideas to our Action Alert BUY List.

I will be on with Michael Campbell on MoneyTalks radio on August 8th on the Corus network. Please listen in for our discussion about the energy and energy service industry with Michael at 10:00AM MT. With some energy and energy companies reporting disappointing Q2/20 financial results we will talk about them and my optimistic view for 2021.

Subscribe to the Schachter Energy Report and receive access to our previous Webinars (next webinar Thursday August 13th), 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.

Our August 13th SER webinar will be of interest to those wanting to get an understanding of recent quarterly results in the sector and our outlook for the energy industry through the end of 2020 and into 2021. We expect a key energy and energy stock BUY signal to come out during Q4/20 and we will discuss our favourite energy and energy service ideas for investors to do their homework on so that they are ready to BUY when the next low risk BUY signal is activated. 

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

(Note: Please share this comment on Facebook and Twitter. 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 – July 22nd

Josef talks about how US consumption last week fell materially as more cities went into lockdown. As well as how US production rose by 100Kb/d to 11.1Mb/d. He expects crude will decline in the coming weeks and that energy stocks will feel significant downside pressure.

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 July 22nd’s EIA weekly data was bearish across the board. The headline number for commercial crude stocks showed a rise of 4.9Mb versus the forecast of a decline of 2.1Mb. Net imports fell by 77Kb/d or by 539Kb in the week, which if it had been flat on the week, would have meant a build of 5.4Mb. Motor Gasoline inventories fell by 1.8Mb even though demand weakened, as refinery utilization fell 0.2% from 78.1% to 77.9%. Overall stocks rose by 8.8Mb. Cushing saw its third weekly increase with a rise of 1.4Mb to 50.1Mb. US production of crude rose for the first time in many weeks with US domestic production rising  100Kb/d to 11.1Mb/d, as producers returned low cost shut-in production. This had been telegraphed by recent energy company announcements.

Product supplied/consumed fell by 826Kb/d to 17.65Mb/d and is down 3.9Mb/d or 18% from last year’s level of 21.5Mb/d. Finished motor gasoline demand fell by 98Kb/d to 8.55Mb/d, and is down 12% from 9.67Mb/d last year. Jet fuel usage fell 191Kb/d to 1.08Mb/d and is down 759Kb/d or 41% less than last year’s 1.84Mb/d. The increase in covid-cases and ICU beds being filled up in many cities in the US south are restarting lockdowns and renewing requirements for face masks and social distancing.

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 5 rigs) to 253 rigs and down 73% from 954 rigs working a year ago. The US oil rig count fell by 1 to 180 rigs (down 4 rigs last week) and down 77% from 779 rigs working last year. Canada’s rig count rose by 6 rigs (up by 8 rigs last week) to 32 rigs working but is still down by 77% from 118 rigs working at this time last year. US companies have announced that they will restart production given current US$40/b prices and this week’s data now shows this return of production. With current demand weakening as reversals of economic reopening are occurring, any significant oil production growth at this time would be very detrimental to the current level of crude prices. We are in the bottoming process for the service industry but we may not see decent demand growth until winter 2020-2021 when a vaccine for the coronavirus is available.

Conclusion: As we write this, WTI is at US$41.39/b for the August contract up 50 cents on the  week in the hopes that a coronavirus vaccine is ready by year end (as more pharmaceutical companies announce progress) and that a new US stimulus package of US$2T is approved by Congress in the next week. We are skeptical a deal can come together before the heated election campaign season gets fully underway. For WTI crude we see a decline starting shortly (US$38.54/b next breakdown level). Longer term we see a breach of US$30/b triggering aggressive selling of energy and energy service stocks. Demand for energy should weaken as layoffs should pick up in August as the current wage support plan ends July 25th and is unlikely to be renewed. We also expect to see more corporate bankruptcies as Q3 unfolds.

The energy and energy service companies with the most downside are those with high debt loads, high operating costs, declining production, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier crude barrels. Results for Q2 start to come out tomorrow for the large cap energy companies (Cenovus, Suncor and Precision Drilling). The bulk of the company reports should come out in August.

Hold cash and remain patient for the next low risk BUY window. If over-invested hopefully you have already taken appropriate defensive action.  

The S&P Energy Bullish Percent Index peaked at 100% in early June. This is the only such reading ever. It had fallen to 23.1% last week but bounced to 34.6% yesterday. The Energy Bullish Percent Index is likely to fall to below 10%, providing the next low risk BUY signal. The S&P/TSX Energy Index is at 80 today up two points on the week. The Index is down 17% so far from the early June high of 96.07. The next downside short term support is 71.76 and then we see downside to the 50 level. For the S&P/TSX Energy Index we see a bottom at the 32-36 level as the next major bottom low. Downside for the Dow Jones Industrials breakdown is 24,800 (now 26,910) with much lower levels  in Q3/Q4, 2020.

Our July SER Monthly Interim Update comes out tomorrow, July 23rd. We go over our reasons for being bearish on the general stock market. The underpinnings of the current market strength are the handful of tech-heavy NASDAQ “at home” beneficiaries. The rest of the market is showing internal deterioration. We expect a market breakdown over the next month or so.

Once the general market plunges and we get closer to the climactic bottom we will profile our Table Pounding best energy and energy service BUY ideas to consider owning by subscribers and add new ideas to our Action Alert BUY List.

We introduce coverage this week of a new international investment idea with the launch of coverage of an exciting small cap natural gas growth story in our July SER Monthly.

I will be on with Michael Campbell on MoneyTalks radio on August 1st on the Corus network. Please listen in for our discussion about the energy and energy service industry with Michael at 10:00AM MT.

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