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 32 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.
The EIA report last week was clearly bearish with almost every data point but WTI rose as ARAMCO had two blockbuster days of trading on the Saudi stock exchange. ARAMCO rose the maximum allowed of 10% in each of its first days of trading. This is a big win for the Saudi Crown Prince. ARAMCO is now valued at US$2.0T.
EIA DATA: Total US stocks rose a whopping 17.2 Mb on the week. Commercial crude stocks rose 0.8 Mb on the week (expectation decline of 2.8 Mb), with gasoline inventories up 5.4 Mb and distillate inventories up 4.1 Mb as refinery utilization fell to 90.6% from 91.9% last week. US production fell 100 Kb/d to 12.8 Mb. Demand fell an astounding 2.73 Mb/d to 18.4 Mb/d from 21.1 Mb/d last week. This seems unusually large and could likely be weather related and be reversed next week. Gasoline demand fell 149 Kb/d to 8.9 Mb/d.
The OPEC report was out last week and now forecasts a supply deficit next year if the recently announced cuts 500,000 b/d (400,000 by Saudi Arabia) are realized.
CONCLUSION: We still expect somewhat lower crude prices near term but the downside is now more limited due to the OPEC cut and Saudi Arabia focused on making ARAMCO a very successful underwriting. ARAMCO wants to sell more shares in 2021 so it needs the stock to trade even higher and for the company to generate higher revenues, cash flow and free cash flow to pay higher dividends.This is a game changer for oil in this cycle. Saudi Arabia now needs higher crude prices over the cycle versus market share as in the past.
With just under two weeks remaining for tax loss selling, somewhat lower energy stock prices are expected. The best bargains are in natural gas and service industry stocks. The Baker Hughes report on the drill rig stats was favourable for Canada. We used 15 more rigs or 153 rigs and utilization is now only 12% below a year ago. In the US there was no change in rig count at 799 rigs and is down 25% from 2018 levels.
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We are working away at our most important issue of the year, our joint December SER and Interim Update that will be out on Dec 20th. The two key sections are on the Best Tax Season BUYS and the second on Our Outlook and Forecasts for 2020. It will be an important read for subscribers.
I am also on BNN Market Call on Tuesday December 17th at 10AM MT for those interested.