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 was very busy on the energy side with lots of cross currents of bullish and bearish events and data. However, by the end of last week, WTI crude oil prices were only up less than one dollar to US$54.38/b from the prior week.
The EIA report highlighted that US exports rose to a new record high of 3.4Mb/d up 534Kb/d as the Saudi disruptions of light crude and crude products brought more buyers to the US. Shipping costs are rising as the US has sanctions against the largest Chinese crude carrier which was moving a lot of product and now has been limited to working in countries concerned about the painful US sanction regime. For Canada, we increased our exports to the US by 99Kb/d to 3.4Mb/d and now provide 43.2% of US crude imports. This is up 4% from a year ago. Current differentials for WCS of US$16/b provide attractive economics for additional rail shipments. An attack on Friday against an Iranian crude tanker has added to the risk premium. The EIA report showed another week of commercial stock build with a 2.9Mb build versus an expectation of only a build of 1.3Mb. In addition US production rose to a record high of 12.6Mb/d as new pipelines in the Permian basin in Texas started to move more production.
OPEC DATA: OPEC is talking about making additional crude cutbacks at their next OPEC meeting in December. The OPEC report showed demand growth in India in August to 4.61Mb up 125Kb/d from a year ago. The OPEC report showed a material decline in production due to the attack against the large processing facility at Abqaiq. Saudi production in September fell 1.28Mb/d to 8.56Mb/d. Overall OPEC production declined by 1.32Mb/d to 28.5Mb/d much below the 30.7Mb/d call on OPEC at this time of year.
OPEC in their report out last Thursday lowered their demand forecast for the rest of 2019 and 2020 due to the trade war slowdown in economic activity. Libya production was one of the bright spots for production growth for OPEC rising in September by 104Kb/d to 1/16Mb/d. We don’t expect the trade talks between China and the US to have a meaningful result and the current bounce in the stock markets and the energy prices will reverse.
CONCLUSION: We see crude prices retreating in the coming weeks to below US$50/b and bottoming before the full winter demand season arrives to lower crude prices to the US$47-51/b level. Energy stock prices should see significant tax loss selling pressure in November and December as we saw last year. A table pounding buying window should occur in the coming months and we will issue Action Alert BUYS to subscribers when this occurs. We expect to have new BUY recommendations at that time.
CONFERENCE: We still have some Basic Breakout Tickets for our ‘Catch the Energy’ conference to be held next week (October 19th) at MRU. Please take advantage of the remaining tickets. We expect to be full up!
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 27 Energy Sector CEOs. Below are the companies presenting at the conference. Learn more and register.