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.
EIA Data last week: The EIA data was initially seen as bullish and the price of WTI rose to US$57/b up $1/b on the day. The bullish first data point of commercial stocks showed a 2.7Mb decline on the week, better than the forecast of a 1.8Mb decline. However later when the full details were released (versus the bullish early headline) distillate inventories rose by 2.6Mb, propane stocks rose by 4.0Mb and overall stocks rose by 4.0Mb. By the end of Wednesday WTI had declined to US$55.68/b, down $0.45 on the day.
More importantly from our point of view was why there was a larger decline in commercial stocks. It appears that the net imports showed a weekly decline of 617Kb/d or 4.3Mb. If not for this decline, US inventories would have risen on the week. A rise is not normal for this time of year. An additional bearish factor was that consumption fell by 1.1Mb/d to 21.0Mb/d and gasoline demand fell by 305Kb/d on the week. It appears as if the peak summer driving season may have already ended. If so, US inventories will start building after the September long weekend at a faster pace than normal.
Apportionment: The Alberta Government decision to extend oil production quotas into the end of 2020 because of US pipeline delays, has been well received by the industry. Their move to restrict only the larger energy companies (those producing over 20,000 b/d instead of those producing over 10,000 b/d) is a very good move. This helps the smaller producers and is now easier for the Government to monitor as there are only 16 companies affected versus 29 companies before. In addition, the curtailment information will be sent out 60 days in advance versus the current 30 days which will make planning easier for the companies. ALL GOOD MOVES!
Our SER webinar last Thursday was very well received. We discussed why we expect a significant general market correction and shared our view on the upcoming low risk BUY signal for energy and energy service stocks. We also discussed why we do not expect Vermilion Energy (VET-T) to cut its dividend which is a concern for some investors. A review of Bonavista (BNP-T) was also included. For those interested in listening you can access the Archives once you become a subscriber.
Conclusion: The battle to breach US$50/b is coming. After the September long weekend if we see big builds in commercial stocks over a few weeks, the breach should occur. We expect the lows to be reached in late October accompanied by a meaningful correction in the general stock market. Last Friday’s move by China to increase tariffs on US$75B of goods rattled the stock markets and commodity prices. Crude fell US$2.00/b to US$53.35/b. The US follow-up escalation of the trade war will only exacerbate the situation.
Hold cash for a very low-risk buying opportunity expected in late October. We will send out an Action Alert BUY signal to our subscribers when we see the window occuring.
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.