Energy & Commodities

Schachter’s Eye on Energy – July 21st

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 30 energy, energy service and pipeline & infrastructure companies with regular updates. We hold quarterly subscriber webinars and provide Action BUY and SELL Alerts for paid subscribers. Learn more

EIA Weekly Data: The EIA data on Wednesday July 21st was mixed for crude oil prices as energy product demand rose however Commercial Crude Inventories also rose. The headline Commercial Crude Inventories data showed a rise of 2.1Mb on the week (forecast was for a draw of 4.47Mb) to 439.7Mb. The main reason for the rise was a sharp decline in exports of lighter crudes which see little demand from US refineries which are focused on processing heavier crudes. Last week exports fell by 1.56Mb/d to 2.46Mb/d or down by 10.9Mb on the week highlighting the reason for the forecast miss. Refinery Utilization fell 0.4% to 91.4% last week (last year was 77.9% and in 2019 was 93.1%). Gasoline Inventories fell 0.1Mb and Distillate Fuel Inventories fell by 1.3Mb.

US Crude Production was flat versus last week or at 11.4Mb/d of production, but is up 400Kb/d so far this month, and up 1.7Mb/d from the pandemic low. Over the coming months we see US crude production continuing to lift and getting close to the 12.0Mb/d level. The increase in drilling activity and higher energy company cash flows are causing a growth in reinvestment to stabilize production volumes which were declining for many producers. Private energy companies are the most focused on growth. We expect the vast majority of energy companies to indicate a go-forward strategy of increased drilling activity with production growth in 2H/21 and much more growth in 2022 than in their prior forecasts.

Total Product Demand rose by 1.28Mb/d to 20.6Mb/d. However, demand is below late July 2019 when consumption was 21.6Mb/d. Gasoline Demand rose a modest 12Kb/d to 9.29Mb/d (9.67Mb/d consumed in late July 2019). Jet Fuel Consumption fell 151Kb/d to 1.41Mb/d (below the pre-pandemic level of 1.84Mb/d in late July 2019). Cushing Inventories fell last week by 1.4Mb to 36.7Mb compared to 50.1Mb last year.

Baker Hughes Rig Data: The data for the week ending July 16th showed the US rig count with a rise of five rigs to 484 rigs (up four rigs last week). Of the 484 US rigs active, 380 were drilling for oil and 104 were focused on natural gas activity. This overall rig count is up 91% from 253 rigs working a year ago. The US oil rig count is up 111% from 180 rigs last year. The natural gas rig count is up a more modest 46% from last year’s 71 rigs.

Canada had a big 13 rig increase (up by one rig in the prior week) to 150 rigs. Canadian activity is now up 4.7x from the low of 32 rigs last year. Of the Canadian increase there were six more oil rigs working last week for a total of 94 oil rigs working, up from just six last year. There are 55 rigs working on gas projects now, up from only 26 last year.

The increase in rig activity in both the US and Canada should continue to translate into rising liquids and gas production.


On Sunday July 18th OPEC agreed to resolve their quota and production levels standoff. The agreement provided for a rise of 400Kb/d over each month from August to the end of the year and would add 2.0Mb/d before year-end. The big concession was to raise quotas for the UAE and Russia and the Saudis took an increase as well. It appears that this deal is a result of the pressure by the US, China and India, as the largest consuming nations, to force the members to an accommodation and ensure adequate supplies for the rest of this year. The UAE got a 332Kb/d increase in their quota to 3.5Mb/d starting in May 2022 (production June 2021 – 2.68Mb/d). Russia and the Saudis took 500Kb/d increases. The chaos in OPEC is not over. Cheating by OPEC members desperately needing revenues (like Iraq) may see a current shrinking worldwide inventory level move to a regular weekly build starting this fall. The UAE agreed to this deal for now but still wants to lift their production to 4.0Mb/d as they have invested heavily to increase their productive capacity.

On Monday July 19th the stock market was pummeled (Dow Jones Industrials were down 725 points to 33,963) as more ‘Delta’ Covid cases exploded around the world. Over 83% of US new cases are due to this more virulent mutation and is impacting mainly the unvaccinated. Most of the pain was felt by the ‘reopening’ trade stocks led by the energy sector which faced the most downside pressure. WTI fell US$5.53/b to US$66.30/b. It is bouncing back now from this sharp one day decline.

Bearish pressure on crude prices:

  1. The Delta Covid variant is spreading around the world and more countries are facing renewed lockdowns as this new variant takes hold and becomes the dominant version. Australia is facing over half the country under lockdown. US caseloads are up over 100% in just one week to more than 32,000. Some US states with vaccine hesitancy are seeing their highest increase in hospitalizations and deaths. Most of the ICU patients are young and anti-vaxxers.  Asian demand is being hit in China, South Korea, Indonesia, Japan and Vietnam as they tighten movement restrictions again. The rate of vaccination in these countries is very low and plans to increase vaccination rate are not occurring. One indicator of lower demand in China is that steel production fell 5.6% in June according to a Reuters report on July 14th. China crude imports were reported as down for the first half of 2021, the first time this has happened in eight years. Refiners in China are saddled with excess jet fuel which cannot be stored for long periods as the fuel deteriorates in quality over time.
  2. Iran is working to return to the 2015 UN nuclear deal and an accord is likely to be completed in August under the auspices of the newly elected President. Iran is cash strapped and their economy is imploding, facing rapidly rising inflation and shortages of food and medicine. It needs a deal if they are going to afford necessary imports. They have started to ship crude to China from their new export terminal at Jask in the Gulf of Oman. They should be able to lift production to 4.0Mb/d from 2.47Mb/d produced in June 2021 if a deal is concluded in the coming weeks.
  3. China lowered imports by 3% in Q2/21 as the Chinese government import quotas were shrunk and refineries went into maintenance cycles. With the current price level for crude many refiners are not seeing adequate returns and have lowered their buying.

Bullish pressure on crude prices:

  1. Rising vaccination levels of the adult US population toward herd immunity level has lifted summer travel both by air and land. Worldwide demand should rise by 1.5-2.0Mb/d during the summer travel months. This demand increase should last into early September and then we should see a seasonal slowdown of 1.5-2.0Mb/d of consumption and an inventory build to meet winter peak demand.
  2. Weather impacts (hurricane season has started early) may necessitate shutting in some of the offshore Gulf of Mexico production.
  3. Extreme heat waves, crippling droughts and shortage of electricity for air conditioning across the US and Canada is aiding consumption of natural gas. It is a big beneficiary of this increase in electricity demand as hydro has in many cases low water levels. NYMEX natural gas prices are now at US$3.87/mcf. AECO prices are at C$3.83/mcf. These are awesome prices for this time of year.

CONCLUSION: We remain skeptical of the optimists projected 4-5Mb/d full recovery in energy demand to 100Mb/d before year-end. The tug of war between the normal summer holiday travel demand pick-up and the 3-4Mb/d increase in crude oil supplies this year remains the key determinant of future energy consumption and crude oil prices. 

We see demand picking up by around 2Mb/d before year-end which is less than the amount of production that will be brought on by OPEC (ex-Iran) alone. Between some OPEC cheating, US production growth and Iran adding 1Mb/d+, the additional product will be in excess of current demand and will build global inventories this fall. This would endanger the OPEC bullish scenario for crude prices of over US$80/b before year-end.

WTI crude oil prices bounced today  to US$69.53/bon the US consumption recovery. While up today by US$2.33/b it is down from US$73.30/b at this time last week. We see this bounce from the low of US$65/b on Monday as just a short-term oversold recovery. In the coming days we see the decline commencing again. Once we see a close below the intraday low of Monday the next plunge should take WTI down to the US$60-62/b level and then it should again churn for a while at that level. Lower prices should occur once the summer driving season ends in September. The price of crude remains above the pre-pandemic price of early 2020, yet demand is 3-4Mb/d less and OPEC is ramping up production while still having lots of spare capacity. Lower crude oil prices will follow the economic impact of this fourth pandemic wave. If the caseloads rise and economic activity stumbles and vaccination hesitancy continues, then the more pessimistic case for demand and crude oil prices becomes more likely.

Energy Stock Market: The S&P/TSX Energy Index trades currently at 126 (down 19 points from 145 in mid-June or down so far by over 13%). The close below 132 that we mentioned last week has occurred. The level to watch now is the intraday low of this Monday at 119.02. A close below this level would set up the next support level of the 111 area. A bust of US$60/b for WTI would likely mean a decline in the Energy Index to the 100 level or lower. This is likely to occur in September. Much lower levels are likely. Just to the 100 level means a nasty decline of over 30% from the mid-June high.

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China’s Changing Policies Could Create A Huge Oil Demand Deficit

Figures released last week show that China’s crude oil imports in the first half of 2021 declined for the first time in eight years. China has been the world’s largest net importer of crude oil and other liquids in the world since September 2013 and almost on its own created the 2000-2014 commodities ‘supercycle’, characterized by consistently rising price trends for all commodities – including oil – that are used in a booming manufacturing and infrastructure environment. This oil consumption boom from China was a product largely of the 8+ percent average annual GDP growth recorded by the country over that period, with many spikes well above 10 percent. So does this sudden dip in oil imports in the first half of this year – against declining economic growth over the past few years – mean that a major supportive driver of oil prices has gone for good? A noticeable decline in the rate of economic growth in China began in 2012 when it dipped below the key 8 percent figure for the first time since 1990. Since then the true number for China’s GDP growth has been a matter of considerable conjecture as, although the official annual figures have always been above at least 6 percent, traders and analysts are aware that the numbers are subject to extreme political pressures that could not tolerate headline GDP figures of, say, just 3 percent per year, where a number of traders and analysts think it is. Whatever the real figure, the fact remains that up until this latest data release for the first half of this year, China has still accounted for the consumption of 10-14 million barrels per day (bpd) of crude oil since 2012, crossing the 10 million bpd of crude oil imports level in 2019, having overtaken the U.S. as the world’s biggest net importer of crude oil in 2017. Read More.

A Timely End for the Uptrend, Greater Vancouver Homes Resist $2M Price Barrier

Greater Vancouver detached properties fails in the latest attempt to surpass the two million price barrier. Even as prices reach their highest point in history of $1.982M during June, the average sale price is barely above the aggressive uptrend. The pending break to the uptrend will result in a market reversal and the reemergence of price volatility. In addition to the pending trend reversal, the sales totals have greatly diminished from their recent all time highs experienced in March.

Another abating factor to future price increase is the rising inventory levels as homeowners look to reap the benefits of the sudden 24% increase to the average sales price over the past 12 months. Typically as home values increase, so do the listings.

As the current uptrend comes to a likely end, home values will begin to consolidate their recent gains. The obvious question becomes how low will values go? Eitel Insights anticipates a tepid 8% – 10% correction to occur. That implies values to peak around the $2M barrier and will backtrack to $1.830M the previous market peak. There is a possibility that values take a sharper downturn, as the market did not accrue the $363,000 year over year increase based on natural market behaviour. Instead values were artificially boosted by historically low interest rates, the BoC bailing out the secondary mortgage market which in turn supported the banks and CMHC. This allowed the banks to offer mortgages to the sudden monumental spike of demand for detached properties born out of the pandemic. Should the average sales price break back into the previous market cycle below $1.830M, values would very likely find their bottom around $1.725M (-13%).

Even though average sale prices increased out of “unnatural” market factors, there is no mandate that says values will come back to their “rightful” values, if there is such a thing. Instead of values tumbling back to affordable prices, home sale prices are likely to take a temporary pause before the next major push higher. As evidenced by the last sudden 22% increase during June 2013 ($1.120M) to February 2014 ($1.367M). The rapid uptrend was unable to sustain itself for a prolonged period of time. After values peaked in Feb 2014, there was a correction of 13% by July 2014 ($1.184M), and home values did not surpass the 2014 price peak until the following February ($1.402M). While the 2014 break out was a false break, the following year of a market consolidation was the last opportunity to purchase before another major increase to $1.816M in January 2016. The resulting growth phase from July 2014 ($1.184M) to January 2016 was a substantial 53% increase .

Similarly, Eitel Insights anticipates a major price injection after the pending market lull. A market driven growth phase typically ranges from 40 – 56% price increase over the past 16 years. The conservative side of the range implies values could reach as high as $2.8M (41% increase) during the next growth cycle. The next growth cycle is likely to occur as immigration returns in a big way, including international investors. Rising interest rates will spur on another phase of FOMO as interest rates increase, the buyers will be eager to purchase before further escalation occurs.

The reopening of interprovincial travel, and the lifting of covid restrictions undoubtedly had a negative effect on total inventory during June. June’s 4,781 active listings signalled the first decline since December 2020 with only 2,762 active listings, the lowest total on the chart. Equally important the current level of active listings is similar to the August 2020 peak inventory of 4,823.

Inventory levels have historically peaked during the summer months, however over the several years the trend has been for inventory to peak during August or September. This is likely to be the case for 2021, as potential sellers list with eyes towards selling their properties at peak values.


Sales have fallen back from their near term highs of 1,973 during March 2021, June finished with 1,272 completions. Well above the preceding three year sales channel of sub 950 sales in every month (2017 – 2020). With sales returning inside of the historical sales channel, the data will likely find support thanks to the upturned in the near term, as inventory levels have evolved to peak later in the year, so has the sales yearly peaks. As the inventory rises during the last summer and early fall, sales will likely take another leg higher, before dropping below the current uptrend during winter.

The supply demand metrics continued to narrow from the extreme demand driven market during March 2021. Demand has shrunk from a 2.296 level to 0.528 while the supply has risen from -1.357 to -0.680. Resulting in the demand driven gap to decrease 56% from 3.653 in March to 1.208 in June 2021.

Not all areas inside of Greater Vancouver will react equally during the upcoming months. For individual area market analysis, or to become and Eitel Insights client contact us.

Peloton plans to launch an in-app video game where you pedal to control a rolling wheel

Peloton is entering the video game business. Today the company announced its latest idea to get people to exercise: an in-app video game tentatively called Lanebreak. The game, which will only be available for Peloton bike owners and subscribers, involves riders changing their cadence and resistance to meet various goals and control an on-screen rolling wheel. Players can choose a difficulty level, the type of music they want to hear, and the duration of the track before starting. The game isn’t available yet, but a members-only beta will open later this year. Peloton hasn’t share details around how people will be able to sign up.

The game’s vibe and interface reminds me of the Rainbow Road in Mario Kart, with a track trailing off into the universe. It’s more or less the same on Lanebreak, except instead of controlling Mario, you’re pedaling to keep your tire moving and meet specific goals. There are three types of challenges and ways to earn points: Pickups, which means that so long as you’re in the lane that the game commands, you’ll earn points; Streams, which reward you based on your cadence; and Breakers, which reward you based on energy output…read more.

It’s official: The Covid recession lasted just two months, the shortest in U.S. history

The Covid-19 recession is in the books as one of the deepest — but also the shortest — in U.S. history, the official documenter of economic cycles said Monday.

According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to the following April.

Though the drop featured a staggering 31.4% GDP plunge in the second quarter of the pandemic-scarred year, it also saw a massive snapback the following period, with previously unheard of policy stimulus boosting output by 33.4%.

“In determining that a trough occurred in April 2020, the committee did not conclude that the economy has returned to operating at normal capacity,” the NBER said in a news release. “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”

The pandemic recession was unique in a number of ways, not least how fast the contraction happened and how ferocious the recovery was.

Conventionally, a recession is defined as two consecutive quarters of negative GDP growth, which this recession met after the first quarter in 2020 fell 5%. But the NBER noted that in normal times, a recession lasts “more than a few months.”…read more.

Airlines race to train pilots as travel demand roars back

Some of airlines’ most in-demand flights this summer don’t even leave the ground.

Flight simulators from Atlanta to Dallas to Miami and elsewhere are humming as airlines scramble to get hundreds of pilots trained to meet a surge in bookings that kicked off this spring as vaccinations rolled out and Covid-era restrictions eased.

Domestic leisure travel has recovered to 2019 levels, while business travel is also rebounding, airline executives said this month.
Airlines have received $54 billion in federal aid since March 2020 in exchange for not laying off workers. But voluntary departures, changed fleets and the rapid rise in travel demand have created a need for pilot training that industry experts say is without parallel. Reduced flight schedules also meant pilots weren’t getting in their minimum takeoffs and landings required to maintain their flying status. Training pilots on new aircraft can take weeks while annual retraining can take a few days.

“What is unique about this experience is the drop-off in business [early in the pandemic] was an existential threat to the business,” said Bryan Terry, managing director and global aviation leader at Deloitte. “Then what came, the unexpected part, the return to travel came faster than expected.”

That “puts a very tight timeline” on the pilot training, he added.

Airline executives urged pilots and other employees to take early retirement and leaves of absence at reduced pay to cut expenses. They parked hundreds of jets, retiring some planes altogether…read more.