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Each week Josef Schachter gives 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 33 energy, energy service and pipeline & infrastructure companies with regular updates. We also hold quarterly webinars and provide Action BUY and SELL Alerts for paid subscribers. Learn more.
Global Economic, Political & Military Update:
Yesterday’s US midterm elections did not turn into a ‘red wave’ for Republicans. Too many races are still too close to call and the Senate race in Georgia is likely going to another vote on Tuesday December 6th, as neither candidate exceeded 50%. By the end of this week there should be clarity that the Republican got control of the House of Representatives by a small majority but the new Republican speaker will have problems as 90 of the new members elected were endorsed by former President Trump. This hard right MAGA ‘denial crowd’ flank could demand that the GOP follow Trump’s requests and undercut future Republican leaders. Trump overall did not have a good night as he lost Dr. OZ in Pennsylvania to Democrat John Fetterman. The Senate is a toss up and it may take into December to know the outcome. The Democrats are likely to keep the Senate but with the same 50/50 mix. The only red wave winner was Florida Governor Ron DeSantis who took his race by 20 points (a massive victory) and his coattails helped win individuals he endorsed for House and school-trustee seats. His most noted victory was in Democratic stronghold of Miami-Dade County which no Republican had won in two decades. DeSantis’s Presidential ambitions may now have legs. Trump appears to have not gained the traction he wanted to then announce his Presidential bid.
US corporations are having a bad day. The crypto area is plunging as weak finances and take- unders are occurring to save companies. Disney is down 10% today by >11% to US$88.54 per share as its loss doubled to US$1.5B for its direct to consumer unit and guidance was disappointing. META (formerly Facebook) announced the layoff of >11,000 workers (13% of its staff) after a steep decline in digital ad revenue and profit. The stock is down 25% in just the last two weeks.
Bullish pressure for crude prices continues due to the proposed 2.0Mb/d cutback by OPEC starting this month. Additionally the low US SPR storage levels and the onset of winter should increase energy demand.
Bearish pressure for crude comes from the increased lockdowns in China and low imports of crude. China has locked down iPhone City (Foxconn Technologies plants in Zhengzhou) in order to get people off the streets. Apple has confirmed that this will mean fewer iPhone 14 Pro’s will be available for sale during the active Christmas sales season. Workers can’t get in and components have been cut off. Disney’s Shanghai facility has been locked down and people stuck there can only leave after a negative Covid virus test.
EIA Weekly Oil Data: The EIA data of Wednesday November 9th was bearish for oil prices. US Commercial Crude Stocks rose by 3.9 Mb (forecast rise of 1.36Mb) to 440.8Mb and are above last year’s level of 435.1Mb. The rise was due to Exports falling 404Kb/d or by 2.8Mb on the week. The US Strategic Petroleum Reserve (SPR) had a low release of 3.6Mb last week. Motor Gasoline Inventories fell 0.9Mb while Distillate Fuel Oil Inventories fell 0.5Mb. Refinery Utilization rose 1.5% to 92.1% utilization. US Crude Production rose 200Kb/d to 12.1Mb/d (last year at this time 11.5Mb/d).
Total Demand last week rose 785Kb/d to 21.3Mb/d as Gasoline demand rose 352Kb/d to 9.01Mb/d while Jet Fuel Consumption rose 239Kb/d to 1.55Mb/d. Cushing inventories fell 1.0Mb to 27.2Mb on the week.
EIA Weekly Natural Gas Data: US Natural gas storage is being built up for winter 2022-2023 with withdrawals starting shortly as winter has commenced. The US data released last Thursday showed a build for the week ending October 28th of 107 Bcf. Storage is now at 3.50 Tcf sufficient to meet US needs this winter. The biggest increase was in the South Central (44 Bcf) followed by the Midwest (35 Bcf). The five-year average for last week was an injection of 11 Bcf while in 2021 it was an injection of 7 Bcf. So this injection was significant and prices have retreated as a result. US Storage is now 3.7%, below the five-year average of 3.60 Tcf. NYMEX is trading at US$5.86/mcf today while AECO is at $4.87/mcf.
ON DEMAND CATCH THE ENERGY CONFERENCE: We had an amazing and record turnout at the Schachter Catch the Energy conference on October 22nd.
For those that could not attend we video recorded my plenary session and the 10 companies in the two large Ross Glen Hall rooms. Access to this on demand service is now available. The 10 recorded company presentations are listed below:
We started the conference day with my plenary speech which included a general market overview and its implications for the energy sector and why I see that a new energy super cycle started in March 2020. Afterwards we had 34 companies presenting their stories. The exhibitor rooms were very popular as individual investors had a chance to speak to each company that presented. Many rooms reached capacity quickly. The booth areas were very well attended and extensive discussions with management occurred. Investors were very pleased to have in person access to management after the two year pandemic hiatus. The wonderful food prepared by Great Events Catering throughout the day received a WOW from attendees. Thank you to our Sponsors for their support to make this a very high quality and successful event.
Overall we are very happy with how the day turned out (despite having our first Calgary winter snow storm) and we hope you were too. Save the date for next year’s conference on October 14, 2023 at Mount Royal University (MRU).
Thank you to our Sponsors and Presenters!
Baker Hughes Rig Data: In the data for the week ending November 4th the US rig count rose two rigs to 770 rigs (down three rigs last week). Of the total rigs working last week, 613 were drilling for oil and the rest were focused on natural gas activity. The overall US rig count is up 40% from 544 rigs working a year ago. The US oil rig count is up 36% from 450 rigs last year at this time. The natural gas rig count is up 55% from last year’s 100 rigs, now at 155 rigs. The industry this year has been responding to higher US and international natural gas prices with materially more activity than last year. This should lift overall US production in coming quarters.
In Canada, there was a decrease of three rigs (last week an increase of two rigs) to 209 rigs. Canadian activity is up 31% from 160 rigs last year. Peak potential for staffed rigs is likely around 260 – 280 this winter. Activity for oil grew 48% to 141 rigs up from 95 last year and natural gas rigs rose slightly to 68 rigs from 65 a year ago. With winter now here we expect activity to pick up as prices strengthen over $5/mcf and as large winter drawdowns occur.
CONCLUSION:
As a global recession unfolds, crude prices plunge sharply. In 2008-2009 during the financial crisis, demand fell by over 5Mb/d from over 88.5Mb/d to 83Mb/d. The price of crude fell from US$147.27/b to US$33.55/b in eight months. During Iraq’s invasion of Kuwait, prices rocketed from US$16.16/b in July 1990 to a high of US$41.15/b in October and then plunged in four months to US$17.45/b as recessionary demand destruction occurred. WTI today is priced at US$86.70/b (down US$2.21/b on the day). Watch for a breach of US$76.25/b (the late September low) for the next onslaught to commence.
The final overall stock market corrective low (the ‘pause that refreshes’) for this new nascent energy super cycle, should occur during Q4/22 as WTI prices breach US$70/b. This upcoming climactic low should provide fabulous buying opportunities at great prices (Table Pounding BUY levels) for energy related stocks.
Energy Stock Market: Over the last few months the Dow Jones Industrials Index has fallen >5,600 points to a new intraday low of 28,661. The Dow is now following a normal bear market bounce and is nearly exhausted and should back down shortly. Once the Dow reverses, we should start the next painful phase of the overall decline from the start of the year down to the 24,000 – 25,000 area. This bottom is likely to occur during the tax loss selling season into mid-December.
The S&P/TSX Energy Index today is at 264 (unchanged on the week). Last month’s low of 200.97 is now the support level to watch. A bust of this level should drive the Index below 200 and get us into the climactic bottom liquidation area of 160-180 that will set up a fabulous buying opportunity.
Once we see the market showing climatic bottom signals we intend to send out Action Alert BUY ideas to subscribers. Ideas are likely during tax loss selling season (late-November to mid-December). Become a subscriber to get these timely BUY Alerts. Go to https://bit.ly/2FRrp6k
Our Q3/22 90-minute webinar takes place on Thursday November 24th at 7PM MT. We intend to cover the Q3/22 reports of the companies we cover with specific detail on those that beat expectations and those that underperformed. There will be two Q&A sessions. If stocks retreat materially by then we will cover the additions to the Action Alert BUY lists as well. One needs to be a subscriber to access the webinar live or access the archive thereafter.
Please feel free to forward our weekly ‘Eye on Energy’ to friends and colleagues. We always welcome new subscribers to our complimentary energy overview newsletter.
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