The announcement comes as U.S. automakers struggle to source semiconductors for vehicle production.

Intel Corp. is making major plays in the field of semiconductor manufacturing. The Santa Clara, California-based technology and electronics company announced it would spent $20 billion on two new semiconductor factories in Chandler, Arizona. The plants are expected to employ 3,000 people in high-tech manufacturing jobs.

In addition, Intel will form a standalone semiconductor manufacturing business, Intel Foundry Services, in order to serve growing global demand for computer chips, with plans for more semiconductor factories elsewhere in the U.S. and Europe.

The new standalone business will help Intel challenge rival chip manufacturers around the world like Samsung Semiconductors of South Korea and TSMC of Taiwan, which currently produce many of the computer chips used in electronic products from cell phones and laptops to electric vehicles and refrigerators.

Read More

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 27 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. 

EIA Weekly Data: The EIA data on Wednesday March 24th was overall bearish for prices as both crude inventories rose for a fourth week and US production rose by 100Kb/d to 11.0Mb/d. Commercial Crude inventories rose by 1.9Mb compared to a forecast of a 300Kb/d decline as net crude imports rose by 299Kb/d or by 2.1Mb on the week. In the coming weeks US production should continue to rise as drilling activity is robust and could recover another 1.0Mb/d to reach 12.0Mb/d. Private operators are driving the growth in production at the current time as large public companies are under pressure to pay down debt and provide shareholder returns. Gasoline inventories rose a moderate 200Kb and Distillates rose by 3.8Mb as refinery activity recovered.

Refinery Utilization recovered 5.5 points to 81.6% from 76.1% but remains below last year’s 87.3%. Overall Commercial Crude inventories are 47.4Mb above last year or up by 10.4% to 502.7Mb. Just in the last four weeks crude inventories have risen 39.7Mb. This is the build problem we have been warning about. Inventories should continue to rise until we start the summer driving season. This could add 40-60Mb of additional stocks in storage. Total Product consumed fell 231Kb/d to 18.73Mb/d.  Gasoline demand rose a modest 174Kb/d to 8.62Mb/d. Jet Fuel consumption rose by a modest 27Kb/d to 1.04Mb/d as the spring break travel season is underway. Inventories at Cushing fell 1.9M to 46.3Mb and are up from 39.3Mb a year ago.

Baker Hughes Rig Data: The data for the week ended March 19th showed the US rig count rise of nine rigs (one rig decline in the prior week). Canada had a decline of 24 rigs (25 rigs lower last week) as we are in the spring break-up season. Canadian activity is 6% below last year when 98 rigs were working. In the US there were 411 rigs active, but that is down 47% from 772 rigs working a year ago. The US oil rig count rose by nine rigs. The Permian saw an increase of four rigs to 216 rigs working and activity is 47% below last year’s level of 405 rigs working. The Eagle Ford saw an increase of three rigs to 32 rigs but remains 52% below last year’s rig level of 67 rigs working. The rig count for oil in Canada fell by 17 rigs to 41 rigs working and is down 21% from 52 rigs working last year. The natural gas rig count fell by seven rigs to 51 rigs active but is up 11% or five rigs from last year’s level of 46 rigs working at this time last year.

We are now one year past the start of the pandemic shutdown of the economies world wide. From current levels economic data will be watched closely to see how quickly we are recovering.

Conclusion:

Crude oil prices have fallen nearly US$10/b from the high less than three weeks ago of US$67.98/b after the Saudi announcement of extending their official 1.0Mb/d production cut through April, to this morning’s low of US$57.49/b. The large plunge has many reasons which we have been covering for some time:

1. First, Europe is seeing more cases (a third wave) of the mutant pandemic versions and has gone into longer lockdowns. Germany the engine of Europe is extending its lockdown until April 18th (with a strict lock-down during Easter) and may extend it if case-loads and deaths don’t decline. Cases doubled in Germany over the last month. Nearly a third of France just entered a month-long lockdown.
2. Demand is showing signs of softening in various countries in Asia.
3. Significant OPEC cheating is occuring (Iran, Iraq, Libya, Nigeria and Venezuela)
4. US production has recovered by 1.3Mb/d so far from the Texas winter blast and may be able to add 1.0Mb/d more in the coming months. US inventories have risen by 39.7Mb in the last four weeks busting the notion of inventories declining which has been the bulls’ thesis mantra. The IEA in their recent monthly report noted “global oil inventories and supply remain plentiful”.
5. A stronger US dollar has a negative impact on commodity prices. The US dollar has risen recently to 92.35.
6. Speculative crude oil futures buyers have been hurt as the price fell sharply and margin calls added to the large plunge of US$4/b yesterday.

With the significant plunge in crude prices, reflex rallies are likely. Today we are seeing such a bounce as a giant China Evergreen operated container ship is blocking the Suez canal. It became wedged in length ways across the waterway causing over 100 vessels including oil tankers to be delayed in transit. Tugs boats are working to refloat the vessel and are likely to do so in the near future. This short term issue bumped WTI up from US$57.49/b to US$60.44 currently. This bounce should end shortly and the downtrend recommencing.

With the big decline in the last few weeks we see the technical support levels for WTI crude now at US$57.75 on a close (not much below where we are now). Energy and energy service stocks were overbought and had been chased by hot momentum money and quarterly window dressing as we near the end of Q1/21. We remain in the bear camp now. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for many companies for Q4/20 have been released and were not strong enough to justify current lofty stock price levels. If crude prices retreat below US$50/b these stocks will get battered.

We had a 100% SELL signal on January 14, 2021. Subscribers of our regular SER service were notified of this on January 14, 2021 and were informed of 14 stocks and the prices at which we think should be harvested. We sent out a second SELL Alert on February 5th and added four additional ideas for harvesting. The next two months could see significant downside for the energy sector. The topping process for the general stock market is ongoing and some  event will prick this bubble. Rising interest rates appear to be the most likely reason as the US 10-Year Treasury yield has increased to a new 2021 high of 1.74% more than triple the 0.52% of last August. 

Two weeks ago we got a second 100% Bullishness signal which is the first time in my career that we have seen back to back clear SELL signals in any one year. The danger is clear and the downside is significant. Just look at the horrible downside moves seen in yesterday’s trading. 

Energy Stock Market: The S&P/TSX Energy Index now trades at 117 and is part of a lengthy, extended, and broadening topping process from the peak at 128. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 111.59 (yesterday’s low) should initiate the next sharp decline. Our target, once 100 is busted is down to the 60-70 area with WTI trading in the US$42-48/b area. In this range we will be looking for a bottom and the next low risk BUY signal.

We are in the process of setting up models on five pipeline and infrastructure stocks and will launch coverage of these new ideas in our April SER Monthly to be distributed on Thursday April 22nd. Our research presentation will then move to all of our companies falling under three designations: Conservative, Growth and Entrepreneurial. Investors interested in this new coverage should become subscribers to get access to our expanded research coverage.

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY or SELL signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies’ financial results in our reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  https://bit.ly/34iKcRt to subscribe.

First, it was a demand slump across pretty much every manufacturing industry because of the pandemic. Then a surge in demand for electronics caused a shortage of microchips, which hit the automotive industry particularly hard. Now, the Texas Freeze has caused a global shortage of plastics. The Wall Street Journal reported this week that the cold spell that shut down oil fields and refineries in Texas is still affecting operations, with several petrochemical plants on the Gulf Coast remaining closed a month after the end of the crisis. This creates a shortage of essential raw materials for a range of industries, from carmaking to medical consumables and even house building.

The WSJ report mentions carmakers Honda and Toyota as two companies that would need to start cutting output because of the plastics shortage, which came on top of an already pressing shortage of microchips. Ford, meanwhile, is cutting shifts because of the chip shortage and building some models only partially. GM, on the other hand, has started building some pickup trucks without a fuel management module because of the shortages, which will affect the fuel economy performance of these cars.

Yet, the automaking industry is just one victim of the abnormal circumstances on the planet and the Gulf Coast. Another is the construction industry. The WSJ reports, citing industry insiders, that following the petrochemical shutdowns, builders are bracing for shortages of everything from siding to insulation.

Read More

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 27 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. 

EIA Weekly Data: The EIA data on Wednesday March 17th was bearish for prices as both crude inventories rose and Gasoline demand waned. Commercial Crude inventories rose by 2.4Mb compared to a forecast of 2.1Mb and would have been higher by 1.5Mb if not for net crude imports falling by 219Kb/d. US production was flat at 10.9Mb/d,and is 2.2Mb/d below last year’s 13.1Mb/d of production. In the coming weeks this could recover another 1.1Mb/d to reach 12.0Mb/d as rig activity remains strong and some of the weather related production shut-ins come back on line. Private operators are driving the growth in production at the current time as large public companies are under pressure to pay down debt and provide shareholder returns.

Refinery Utilization recovered 7.1 points to 76.1% from 69.0% but remains below last year’s 86.4%. Overall Commercial Crude inventories are 47.1Mb above last year or up by 10.4% to 500.8Mb. This is the build problem we have been warning about. Inventories should continue to build until we start the summer driving season. This could add 40-60Mb of additional stocks in storage. Total Product consumed rose a modest 261Kb/d to 18.93Mb/d.  Gasoline demand fell 264Kb/d to 8.44Mb/d. Gasoline inventories rose as a result of the greater refinery activity, by 0.5Mb. Jet Fuel consumption rose by 161Kb/d to 1.01Mb/d as the spring break travel season started. A post-pandemic high of 1.34M people travelled by air last Friday according to the US Transportation Security Administration (TSA). Overall US consumption of all products is 12% below a year ago, Gasoline demand is down by 13% and Jet Fuel demand down by 42%. Inventories at Cushing fell 600Kb to 48.2Mb and are up from 38.4Mb a year ago.

Baker Hughes Rig Data: The data for the week ended March 12th showed the US rig count off by one rig (one rig up in the prior week). Canada had a decline of 25 rigs (22 rigs lower last week) as we have ended the winter drilling season and breakup season has started. Canadian activity is 34% below last year when 175 rigs were working. In the US there were 402 rigs active, but that is down 49% from 792 rigs working a year ago. The US oil rig count fell by one rig. The Permian saw an increase of one rig to 212 rigs working and activity is 49% below last year’s level of 418 rigs working. The rig count for oil in Canada fell by 22 rigs to 58 rigs working and is down 50% from 115 rigs working last year. The natural gas rig count fell by three rigs to 58 rigs active and is down from 60 rigs working at this time last year.

Conclusion:

Crude oil prices have fallen nearly US$4/b from the high two weeks ago of US$67.98/b after the Saudi announcement of extending their official 1.0Mb/d production cut through April. This positive lift to crude has now been reversed as it appears that there has been significant OPEC cheating (Iran, Iraq, Libya, Nigeria and Venezuela) at the same time as the US brought back on 1.2Mb/d (from 9.7Mb/d to 10.9Mb/d). In the coming weeks we expect to see further US production additions and if there is OPEC cheating, as remains likely, world inventories will grow in Q2/21 and prices will have reason to retreat meaningfully. Today WTI is down due to the  inventory build, concern about one of the vaccines’ efficacy in Europe, Germany’s exponential growth in infections from the more problematic mutations, and a bearish forecast by the IEA. WTI is now trading at US$63.93/b, down $0.87/b on the day.

Iran in the meantime is selling more oil into China and has plans to increase sales to India in the coming months as they see the Biden administration wanting a nuclear deal and willing to ignore Iran’s cheating on sanctions. The buyers love the lower prices ($3-5/b below Brent) that Iran is offering and as well payment terms are very generous with refiners not paying for the crude until after it is processed. Iran had been shipping indirectly to China on average 306Kb/d in 2020 but this rose to 600Kb/d in January 2021, to 850Kb/d in February and to 856Kb/d in March, according to Reuters and Chinese customs data. OPEC’s next meeting is on April 1st to discuss production levels for May.

Technically the support levels for WTI crude are now US$63.13/b (not much below where we are now) and then US$58.60/b. Energy and energy service stocks are overbought and have been chased by hot momentum money and quarterly window dressing as we near the end of Q1/21. We remain in the bear camp now. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for many companies for Q4/20 have been released and were not strong enough to justify current lofty stock price levels. If crude prices retreat these stocks could get battered. Commercial hedgers have added to their short crude positions and now are short 1.72BB, and net short 644Mb. They clearly expect to be able to buy back their short positions at much lower price levels. Speculative holders are long 586Mb, up 30Mb over the last week.

We got a 100% SELL signal since January 14, 2021. Subscribers of our regular SER service were notified of this on January 14, 2021 and were informed of 14 stocks and the prices at which we think should be harvested. We sent out a second SELL Alert on February 5th and added four additional ideas for harvesting. The next few months could see significant downside for the energy sector. The topping process for the general stock market is ongoing and some  event will prick this bubble. Rising interest rates appear to be the most likely reason as the US 10-Year Treasury yield has increased to a new 2021 high of 1.69% (up 5 BP today) more than triple the 0.52% of last August. 

Last week we got a second 100% Bullishness signal which is the first time in our career that we have seen back to back clear SELL signals in any one year. The danger is clear. 

Energy Stock Market: The S&P/TSX Energy Index now trades at 121 and is part of a lengthy, extended, and broadening topping process from the peak at 128. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 117.81 should initiate the sharp decline. A more important support level to plunge through is 107.66.

I will be on MoneyTalks radio on the Corus (Global) network with Michael Campbell this  Saturday March 20th at 10AM MT. If interested in our discussion on the risks in the general stock market and the energy market specifically, please listen in. We are planning to add coverage of pipeline and infrastructure stocks as well as some special situations that will benefit from a strong economy in Western Canada once this current corrective phase is over.

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY or SELL signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies’ financial results in our reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  https://bit.ly/34iKcRt to subscribe.