This week Josef explains how Crude oil remains in the US$43/b range due to the incoming Hurricane Laura which has shut in a majority of the US offshore oil and natural gas production. As well as how heading into September we’ll see a build in inventories occurring and Crude prices declining.

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 and subscribe. 

EIA Weekly Data: Wednesday August 26th’s EIA data was supportive of the current WTI price of US$43.42/b. Commercial stocks fell 4.7Mb on the week, due to a big increase in exports of 1.2Mb/d or 8.6Mb. With strong demand for product last week motor gasoline inventories fell 4.6Mb, as consumption rose 531Kb/d to 9.16Mb/d due to strong end of summer driving season demand. Total product demand rose by 2.46Mb/d to 19.6Mb/d but is still down 2.6Mb/d from a year ago. Gasoline demand rose last week, but is still down from 9.9Mb/d last year. Distillate inventories rose by 1.4Mb as refinery runs rose by 1.1 points from 80.9% utilization to 82.0%. Jet Fuel demand rose 162Kb/d to 1.14Mb/d but is down 708Kb/d from consumption of 1.85Mb/d last year. US lower 48 production rose by 100Kb/d to 10.8Mb/d as industry activity picked up with a rising rig count and some low cost producers profitable at current WTI crude prices over US$40/b. Cushing inventories fell last week 300Kb to 52.4Mb from 52.7Mb in the prior week.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a rise of 10 rigs last week, the first increase in a long time compared to a decline of 3 rigs in the prior week. The US rig count is now at 254 rigs working, but remains down 72% from 916 rigs working a year ago. A bottoming process in activity in the US is now occurring. The Permian basin had all of the increase of 10 rigs following a rig loss of 5 rigs in the prior week. This basin’s activity is now down by 71% from a year earlier level of 434 rigs. The US oil rig count rose by 11 rigs  to 183 rigs and now is down 76% from 754 rigs working last year.

Canada saw a continuation of more activity with a rig count increase of 2 rigs (last week 7 rigs were added) to 56 rigs working. It is still down 60% from 139 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay natural gas basin activity. Canadian natural gas producer stocks have been strong performers and are outpacing oil stocks. AECO today is $2.54/mcf which is a very strong price for natural gas at this time of year. The hot weather and heavy demand for electricity for air-conditioning is the main reason for this nice price improvement.

Conclusion: As we write this, WTI is at US$43.42/b for the October contract up slightly on the day. Prices are holding up due to the end of summer driving season and Hurricane Laura which should hit the US Gulf Coast shortly. Energy firms according to Reuters have shut-in over 1.0Mb/d of offshore production as well as 1.2Bcf/d of natural gas. This is nearly 58% of US offshore oil production and 45% of US offshore natural gas production. Over 500,000 people have been ordered to flee low lying areas. This hurricane is expected to impact both Louisiana and Texas. The National Hurricane Center projects this to be a category three to maybe a category four level.

While this is near term positive for crude prices we still expect prices to fall after the September long weekend and US demand to decline by 1.0-1.5Mb/d, at the same time as OPEC is raising production by 2.0Mb/d. For crude we see a decline below US$38.72/b as confirming the top. Later, when we see a breach of US$34.36/b the sector will fall under much heavy pressure. Energy stocks have significant downside risk. The most vulnerable stocks 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. Hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index is flat with last week’s level of 82. We see material downside risk over the coming months. A breach of 74.67 would set up the next downside target for this index at the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year.

Subscribe to the Schachter Energy Report and receive access to all archived Webinars, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover.

To get access to our research and to listen to watch the recent webinar please go to  http://bit.ly/2OvRCbP to subscribe.

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This week Josef comments on how US product demand fell 2.2Mb/d to 17.2Mb/d last week as reversal of re-openings occurred in high Covid-19 case States and how US exports of crude and product are waning (down 1.0Mb/d last week to 2.1Mb/d) as trade war issues with China and other weak economies slow imports from US.

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 28 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. 

EIA Weekly Data: Wednesday August 19th’s EIA data was mostly bearish. The most bearish piece was that total product demand fell by 2.2Mb/d to 17.2Mb/d or down by 11% on the week as many States tightened up re-openings due to rising Covid-19 case loads, and a rising percent of tests being positive. Motor Gasoline demand fell 253Kb/d to 8.63Mb/d and Jet Fuel fell a modest 8Kb/d to 980Kb/d. However compared to last year overall product supplied is down 3.8Mb/d from 21.0Mb/d or down 18%, Motor Gasoline is down 997Kb/d from 9.6Mb/d or down over 10% and Jet Fuel demand is down 929Kb/d from 1.91Mb/d, or 49%. With the summer driving season over in just two weeks demand will decline further. Inventories fell 1.6Mb on the week but came in lower than the forecast of a decline of 2.7Mb/d. Exports fell sharply or by 1.0Mb/d from 3.1Mb/d to 2.1Mb/d as China did not buy much and other buyers were not active due to slowdowns in their economies due to new outbreaks of Covid-19 and its mutations. Motor Gasoline inventories fell by 3.3Mb on the week while distillates rose by 0.2Mb. Total stocks excluding the SPR fell 2.8Mb last week. Total stocks are now 139.0 Mb or 7.1% above last year. Refinery runs fell 0.1% to 80.9%. Cushing saw a decline of 0.6Mb to 52.7.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline of 3 rigs (last week down by 4 rigs) in the US rig count to 244 rigs working and down 74% from 935 rigs working a year ago. A bottoming process in activity in the US may be underway. The Permian basin had a rig loss of 5 rigs this week following a 2 rig loss last week. This basin activity is down by 73% from a year earlier level of 441 rigs. The US oil rig count fell by 4 more rigs to 172 rigs and is down 78% from 770 rigs working last year. Canada’s on the other hand saw a rig count increase of 7 rigs (last week 2 rigs were added) to 54 rigs working. It is still down 62% from 142 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay basin activity. Tourmaline Oil, Canada’s largest natural gas producer alone is using 10 rigs.

Conclusion: As we write this, WTI is at US$42.55/b for the September contract down  US$0.38/b on the day. For crude we see a decline below US$38.72/b as confirming the top. Later, when we see a breach of US$34.36/b the sector will fall under heavy pressure. Energy stocks are ahead of the fundamentals and have significant downside risk. The most vulnerable stocks 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. Raise and hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index has fallen over the last week from 85 to 82 or down 3.5% on the week with the decline mainly in oily names. Natural gas stocks have held their own and some have risen as AECO prices have strengthened (AECO today $2.38/mcf) and NYMEX is US$2.41/mcf. The gain is due to the very hot weather and the increase in electricity usage for air-conditioning. We continue to prefer natural gas and natural gas with liquids investment ideas over heavier barrel oil companies. However, after the recent strong performance a correction phase should occur and give us another great buying opportunity during Q4/20.

We now see material downside risk over the coming months. A breach of 74.67 would set up the next downside target for this index at the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year.

We held our quarterly webinar for subscribers on August 13th at 7PM MT for 100 minutes. Topics included:

• Overview of the general stock market and why we remain cautious on crude prices in the near term.
• Results for Q2/20 from energy and energy service companies that have reported – some are decent and some have disappointed. We do not cover individual company information in the ‘Eye on Energy’ complimentary product so if you want this company analysis please become a subscriber.
• OPEC cutbacks – have they managed to balance world supply and demand?
• If Joe Biden wins the Presidency – what does that mean for the Energy sector in Canada and the US. Who wins and who loses?
• Which energy and energy services stocks have the most downside risk if crude prices retreat below US$30/b?
• We held two Q&A sessions for webinar attendees to ask questions about the topics covered as well as issues of their interest.

Subscribe to the Schachter Energy Report and receive access to this Webinar, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 28 companies that we cover.

To get access to our research and to listen to the recent webinar please go to  http://bit.ly/2OvRCbP to subscribe.

This week Josef discusses why US crude production is falling off at a sharper pace as the low 48 saw volumes decline by 300Kb/d to 10.7Mb/d last week. As well as why offsetting this OPEC raised production by 980Kb/d in July and plans to add 2.0Mb/d this month. As we enter into fall he feels we should start to see crude inventories start to rise again destabilizing crude prices.

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 28 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. 

EIA Weekly Data: Wednesday August 12th’s EIA data was mixed. The most bullish piece for crude prices was the 300Kb/d decline in US domestic production from 11.0Mb/d to 10.7Mb/d. This level is 1.6Mb/d lower than last year’s 12.3Mb/d while the industry retrenches as low prices impede spending. The high profile commercial crude stocks number showed a decline of 4.5Mb (forecast of a decline of 2.9Mb) reflective of net imports which fell 713Kb/d or 5.0Mb on the week. Motor Gasoline inventories fell 0.7Mb while Distillates fuels fell by 2.3Mb on the week. Overall petroleum stocks fell on the week by 8.4Mb. Total stocks are now 148.2Mb or 7.6% above last year. Refinery runs rose 1.4% to 81.0% from 79.6% in the prior week as summer demand kept refineries busy. Cushing saw a rise of 1.3Mb to 53.3Mb compared to 44.8Mb at this time last year.

The summer driving week was quite strong as it rose 1.46Mb/d to 19.37Mb/d versus a decline of 1.18Mb/d in the prior week. However it is still down 12% from last year’s level of 22.06Mb/d. Finished Motor Gasoline demand saw a rise of 266Kb/d last week to 8.88Mb/d but is still down 11% from 9.93Mb/d last year. Jet Fuel demand fell 23Kb/d last week to 987Kb/d. It is down 1.05Mb/d or 51% from last year’s 2.02Mb/d, as the reticence to fly continues.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline of 4 rigs in the US rig count to 247 rigs working and down 74% from 934 rigs working a year ago. A bottoming process in activity is underway. The Permian basin had a rig loss of 2 rigs this week following a two rig loss last week. This basin activity is down by 73% from a year earlier level of 444 rigs. The US oil rig count fell by 4 to 176 rigs and is down 77% from 764 rigs working last year. Canada’s rig count rose by 2 rigs (last week 3 rigs were added) to 47 rigs working but is still down 66% from 140 rigs working at this time last year. Canada’s improvement is due to the pick up in the liquids rich Montney and Duvernay basin activity.

OPEC Monthly: OPEC released their August Monthly Oil Market Report today and they are optimistic that world consumption will rise from 81.8Mb/d in Q2/20 to 92.1Mb/d in Q3 and then to 95.8Mb/d in Q4/20. With US demand alone being 2.7Mb/d lower than last year we expect their forecast is optimistic. Now that there is a pick up in coronavirus cases around the world, crude demand should weaken. In addition, once we get past the September long weekend and into the fall seasonal slowdown, demand historically falls by 1.0 – 1.5Mb/d. In their report they noted that OPEC raised production by 980Kb/d to 23.17Mb/d in July. The biggest increases were from Saudi Arabia (866Kb/d to 8.41Mb/d), UAE (98Kb/d to 2.43Mb/d), Kuwait (73Kb/d to 2.16Mb/d) and Iraq (39Kb/d to 3.75Mb/d). The 2.0Mb/d addition by OPEC starting August 1st may prove detrimental to the industry and current crude prices. In their report they show the call on OPEC for 2020 at 23.4Mb/d so if their production rises to 25.2Mb/d this month then we may see inventories in storage start to rise again in September once these additional barrels hit the market. We expect this excess will dampen the current crude price level.

Conclusion: As we write this, WTI is at US$42.21/b for the September contract up US$0.60/b on the day. For crude we see a decline below US$38.72/b as confirming the top. Later when we see a breach of US$34.36/b the sector will fall under heavy pressure. Energy stocks are ahead of the fundamentals and have significant downside risk. The most vulnerable stocks 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. Raise and hold cash and remain patient for the next low risk BUY window. 

The S&P/TSX Energy Index has risen over the last week to the 85 level as crude oil and AECO prices have strengthened (AECO today $2.11/mcf), but is down over 11% from the early June high of 96 when we recommended taking profits in non-taxable accounts from the great upside move from mid-March. We signalled an Action Alert BUY on March 13th and the stocks since the recommendation have done superbly. We now see material downside risk over the coming months. A breach of 74.67 would set up the next downside target for this index at the 50 level. Further lows are likely in Q4/20 as tax loss selling could be very nasty this year.

We hold our quarterly webinar for subscribers tomorrow Thursday August 13th at 7PM MT for 90 minutes. Topics will include:

• Overview of the general stock market and why we remain cautious on crude prices in the near term.
• Results for Q2/20 from energy and energy service companies that have reported – some are decent and some have disappointed. We do not cover individual company information in the ‘Eye on Energy’ complimentary product so if you want this company analysis please become a subscriber.
• OPEC cutbacks – have they managed to balance world supply and demand?
• If Joe Biden wins the Presidency – what does that mean for the Energy sector in Canada and the US. Who wins and who loses?
• Which energy and energy services stocks have the most downside risk if crude prices retreat below US$30/b?
• We will have two Q&A sessions for webinar attendees to ask questions about the topics covered as well as issues of their interest.
• For subscribers please send in your last minute questions ASAP so we can prepare detailed responses.

Subscribe to the Schachter Energy Report and receive access to our Webinars, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 28 companies that we cover.

Next week our ‘Eye on Energy’ will be produced on Thursday August 20th due to holiday travel.

To get access to our research and to join tomorrow’s webinar please go to  http://bit.ly/2OvRCbP to subscribe.