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.
CANADIAN ELECTION: Energy stocks rose on Tuesday October 22nd after the election as Finance Minister Morneau reiterated the Liberal government’s support for the TMX pipeline and the fears of a sharp move to the left have quieted down, given the result. The S&P/TSX Energy Index rose over 1% to 128. Service stocks and LNG focused names did very well that day. Some of the companies that presented at our ‘Catch the Energy’ conference bounced very nicely (Birchcliff – 3%, Gran Tierra – 9%,Touchstone – 5% and Vermilion – 3%).
We are pleased to see the People’s party go to the dustbin of election history. The Greens going from two to three seats is a non-issue as they do not have sufficient representation to impact Liberal moves and we do not see them having the political clout to affect policies that impact the energy sector. The NDP likewise was neutered as they fell from 39 to 24 seats and while they may affect some Liberal spending priorities (pharmacare etc.) they should not be a force to worry about. The Bloc on the other hand with 32 seats up from 10 before, will make life difficult for Trudeau. He will have to have them onside on every issue that impacts Quebec if he does not want them as a thorn in his side and vote against the Liberals (non-confidence vote) and set off another election. It seems to me that Trudeau may swing to the right and move back to the center so that the Conservatives and the right wing Bloc do not end his governing. Regarding the Bloc’s antipathy to pipelines in Quebec, who cares! The key for growth in the energy sector is pipelines that can ship to Asia. At our conference three Indigenous Leaders of communities that would be directly impacted, were supportive of the LNG industry in BC, a rail line to Churchill (access to Europe) and either a rail line or a corridor to either NW BC or Alaska for future export growth.
The Liberals will have some difficulty showing that they speak for all Canadians after being shut out of Alberta and Saskatchewan. I hope to see leadership contests for the two main parties over the next year and that strong leaders with policy backbone and high ethical standards come out of the contest fracas.
EIA DATA: The EIA data last week came in favourable for oil prices with commercial stocks falling 1.7Mb vs. an expectation of a build of 2.3Mb. As a result, the price of oil has risen over US$1/b to $55.50/b last Wednesday. So far, the market is ignoring that net imports fell 873Kb/day or 6.1Mb on the week. Once this detail is highlighted it will show that the net was a rise of 4.4Mb on the week which was higher than the estimate. One other reason why the crude oil price rose on Wednesday is more optimism on a China/US trade deal. US domestic production remained at 12.6Mb/day. Canada continues to be the largest exporter to the US at 47.7% of total imports however it fell last week by 129Kb/day to 3.28Mb/day.
CONFERENCE: Our Catch the Energy Conference in Calgary on Saturday October 19 was a great success with a record number of attendees and a record number of companies presenting. There was great interest and dialogue at the Indigenous Panel with three leaders from different Indigenous communities. Save the date for the 2020 conference for October 17, 2020.
Photo Credit by Chris Stutz. Left to Right: David Yager, Delbert Wapass, Chief Craig Makinaw, Dale Swampy and Josef Schachter
CONCLUSION: We continue to expect crude oil prices to retreat in the next month or so and if there is any disappointment on the trade deal with China or with the EU, that would be the catalyst for a significant decline in crude prices. We continue to look for WTI to fall below US $50/b and for the S&P/TSX Energy Index to fall below 120. Hold cash for a great buying opportunity during tax loss selling season later this year. Post the Federal Election the energy sector is awaiting the new minority liberal government’s game plan for the TMX pipeline. In the meantime Husky announced major layoffs in Calgary. Hopefully not a sign of more to come.