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.
ENERGY DATA: Last week saw one of the biggest rises in commercial inventories in many months. Commercial stocks rose 7.9Mb versus the 1.5Mb estimate. While some of it was due to net imports which saw a rise of 336Kb/d or 2.4Mb on the week, the overall significant rise is bearish.
US Production remains at 12.6Mb/d and has been stuck at this level for quite a few months despite the addition of new take away pipelines in the Permian. The fall off of drilling activity and well completions is offsetting any new production being brought on. A week ago Baker Hughes had the US rig count down by 8 rigs to 822 rigs or 23% below a year ago when the rig count was 1,067 rigs. US demand fell by 463Kb/d to 21.1Mb on the week with Gasoline demand falling by 639Kb/d as the colder weather slowed driving. Increased movement of crude to Cushing raised stocks to 47.7Mb or by 1.7Mb from the prior week.
The price of crude is holding around US$56/b as the market is getting more optimistic about the phase one trade deal with China and the recent comments by Saudi Arabia that they are considering a cut of 500Kb/d at their next OPEC meeting on December 5th.
CONCLUSION: We remain in the camp expecting lower crude prices over the coming weeks as storage levels continue to climb. The chance of a real deal being done with China right now appears to us as being too optimistic. Trump may want a deal in Q2/20 (in time for the Presidential election) but no deal now unless it is a real deal that solves some of the long term problems. For now we are range bound but a drop below US$54/b will be the key for the last phase of the decline we expect. Natural gas prices are lifting nicely as cold weather reaches across the continent. NYMEX is now at US$2.79/mcf and AECO is now at $2.88/mcf. These are great prices for this time of year. We will be looking to add natural gas focused stocks when we see the tax loss selling season BUY window occur.
WEBINAR: We are holding our fourth and last webinar of the year on Thursday November 14th at 7PM MT. On the program will be our view of the new commodity cycle (precious metals leading – energy to follow), our positive view of natural gas going forward, and our favourite stocks to BUY during the upcoming tax loss selling season. If you want to join in, one must be a subscriber before the show. Go to https://schachterenergyreport.ca/subscriptions/ to subscribe.