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.
Trade war concerns trump the weekly EIA data. Commercial stocks were expected to come in at a decline of 2.8Mb but because of imports rising 485Kb/day or by 3.4Mb on the week inventories rose 2.4Mb. This surprised the market and the price of crude oil fell over 5% to $50.82 (low last Wednesday US$50.57/b). Total US stocks are now 99Mb above last year or 8.2% higher. Two other macro issues were dumping on the price of oil last week. The first being Germany’s manufacturing index fell 1.5% in June versus May (the largest decline in nine years). The second was that China is talking about ending imports of US crude oil. The trade war is escalating and is depressing economic activity and stock markets around the world. As a result we are seeing a currency war developing as many countries try to lower the value of their currency. Because oil is priced in US dollars which has been strengthening, oil prices are plunging. The trade war is impacting China’s demand and Citigroup came out with a forecast last week that Chinese demand would fall by 500Kb/day this year due to the trade conflict. This is adding to pressure on the price of oil.
The S&P Energy Sector Bullish Percentage Index has fallen 16 points from 40% bulls last week to 24 % at the end of last week due to the rout in crude oil prices and energy stocks. We await a level below 10% to be looking for a low risk buy signal for energy securities. Last week the S&P TSX Energy Index fell nearly 7%. We recommend investors stay patient and await the next low risk buy signal to add to positions. We intend to send out Action Alert Buys with specific recommendations when the low risk buying opportunity opens up. To become a subscriber and receive Action Alerts click on the link below: http://bit.ly/33e5BIO
Crude prices recovered last Friday to US$54.75/b up US$2.24/b as Saudi Arabia announced that starting in September they would unilaterally cut back shipments by 700,000 b/d of which the cutback to North America would be 300,000 b/d. The game plan is to lesson the normal storage build during the Fall shoulder season and also to offset weakening demand.
The trade war escalation will have its next shock on September 1st when the US sanctions are implemented. China could then retaliate with another round of weakening the Yuan (last Monday’s weakening to over 7 Yuan to the US$, caused the worst one day loss for the Dow Jones Industrials so far in 2019, when it plunged 766 points or 2.9% on the day) or announce that they will halt imports of US crude and increase imports from Iran. This alone could plunge WTI crude below US$50/b.
We hold our next quarterly Webinar for subscribers on Thursday August 15th at 7PM MT. To attend the webinar become a subscriber.
Conclusion: Energy stocks still have downside but we are closing in on a low risk key buying window as we saw in Nov/Dec 2018 during tax loss selling season and in Feb 2016 with the capitulation in the price of crude oil to US$26/b. If so, a window will open for attractive buys for energy investors on a plunge to US$44-48/b. This level should be the low for crude at this time and would be confirmed by a low single digit level in the S&P Energy Bullish Percent Index.
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. Below are the 26 companies presenting at the conference.
Register early as a VIP to have lunch with your preferred CEO or company. Learn more and register.