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 34 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.
On Wednesday of last week the EIA reported that commercial stocks fell 10.8Mb which normally would have been quite bullish but in the end did not impact prices as it was all related to trade of crude oil during the hurricane. Imports fell 562Kb/day on the week which impacted storage by 3.9Mb and exports were impacted as they grew 758Kb/day which lowered US storage by 5.3Mb. Overall stocks fell by only 6.7Mb as distillate, fuel oil and propane volumes rose.
The Iranian capture last week of the UK tanker remains a geopolitical risk but so far the new British government led by Boris Johnson are looking for a diplomatic solution rather than a military confrontation. Twelve countries that consume oil from the Middle East have increased their military presence in the area to provide escort to the tankers and provide protection from future Iranian attacks. We still expect that the US would like to see a blockade of Iran’s key military ports at some point in the future to deter any Iranian military adventurism. OPEC is planning another meeting in September to decide about production and whether they will cut back even further. In June 2019 OPEC produced 29.8Mb/day down from 32.1Mb/day in Q4/18, so OPEC has cut back already by 2.3Mb/day to balance supply and demand. They may need to cut back a further 500Kb/d.
Canadian exports to the US are growing as rail car exports are increasing. The EIA reported on Wednesday showed that Canadian exports rose by 190Kb/day on the week to 3.73Mb/day. The increased rail car activity now shows exports up 14.8% from 3.25Mb a year ago.
CONCLUSION: The price of crude is around US$56/b and we expect in the next few weeks that the price will fall to the US$50-52/b. Once we get past the end of the summer driving season we expect the price of crude to fall below US$50/b and for a bottom to be reached sometime in September/October as the normal seasonal inventory build occurs in the fall season.
In our BNN Bloomberg top picks selection we chose companies that are benefiting from their drilling programs. All three companies will be speaking at our conference.
The 2nd Annual Schachter Catch the Energy Conference will be held at Mount Royal University in Calgary on Saturday, October 19th. This is a rare opportunity for investors to learn more and interact with 26 Energy Sector CEOs. Register early as a VIP to have lunch with your preferred CEO or company. Learn more and register.