Energy & Commodities

Schachter’s Eye on Energy – March 31st

Posted by Josef Schachter

on Wednesday, 31 March 2021 13:16

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 31 was mixed. US lower 48 production rose by 200Kb/d to 10.7Mb/d and Total Domestic Production rose by 100Kb/d to 11.1Mb/d.  Commercial Crude inventories fell by 0.9Mb, just above the consensus and was due to exports rising 693Kb/d or by 4.9Mb last week. Net Imports fell 170Kb/d or 1.2Mb on the week so we would have had a build this week if not for this stock movement. Motor Gasoline inventories fell by 1.7Mb due to stronger demand while Distillate volumes rose by 2.5Mb on the week as the weather improved. In the coming weeks US production should continue to rise as drilling activity is robust and could recover another 0.9Mb/d to reach 12.0Mb/d before the end  of the summer. Private operators are driving the growth in production as large public companies are under pressure to pay down debt and provide shareholder returns. Refinery Utilization recovered 2.3 points to 83.9% from 81.6% and is now above last year’s 82.3%. It appears the Texas Polar Vortex weather event is now behind us. Overall Commercial Crude inventories are 32.6Mb above last year or up by 7.0% to 501.8Mb.

As we are now one year into the pandemic and its initial impact, we are seeing recovery in the consumption levels of the various products, compared to the full Covid-19 shut down level of last year. Spring break holidaying is helping the numbers. Total Product consumed rose 1.61Mb/d to 20.3Mb/d but remains 4.9% below a year ago on a four week basis. Gasoline demand rose 275Kb/d to 8.89Mb/d. Jet Fuel consumption rose 324Kb/d to 1.36Mb/d and is now slightly above the decimated level of 1.34Mb/d of a year ago. Inventories at Cushing rose 0.8M to 47.1Mb and are up from 42.8Mb a year ago.

Baker Hughes Rig Data: The data for the week ended March 26th showed the US rig count rise of six rigs (nine rig decline in the prior week). Canada had a decline of 11 rigs (24 rigs lower last week) as we are in the spring break-up season. Canadian activity is now above the lows of when the pandemic fear was at its highest. There are 81 rigs working in Canada now compared to 54 rigs working at this time last year. In the US there were 417 rigs active, but that is down 43% from 728 rigs working a year ago. The US oil rig count rose by six rigs. The Permian saw an increase of five rigs to 221 rigs working and activity is 42% below last year’s level of 382 rigs working. The rig count for oil in Canada fell by 10 rigs to 31 rigs working but is up from the pandemic fear level of 18 rigs. The natural gas rig count fell by one rig to 50 rigs active but is up 39% from last year’s level of 36 rigs working at this time last year.

Conclusion:

Crude oil prices have fallen US$8/b in less than four weeks from US$67.98/b after the Saudi announcement of extending their official 1.0Mb/d production cut. Today’s low so far is US$59.96/b. The price now is US$60.78/b.

Bearish pressure on crude prices:

  1. The Suez canal has re-opened and the transit risk has now fallen off.
  2. Europe is seeing a third wave of Covid mutations and has gone into longer lockdowns. Germany, the engine of Europe, is extending its lockdown until April 18th and may extend it further 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 and they may face a full national lockdown shortly.
  3. The CDC Director made an emotional plea Monday for continued masking and social distancing even though vaccination rates are now at 3M people per day. Her concern relates to the higher and faster spread of the mutations and an increase in 31 US States of hospitalizations and use of ICU beds. The death rate has risen to  550K in the US and 2.8M worldwide.
  4. Canada is worrying about a third wave looming over the country as there has been a lack of active testing, and active variant cases are up 50% since early March in British Columbia, Alberta, Saskatchewan, Ontario and Quebec. Vaccination rates are much slower than the US due to slow receipt of product. The new case-load increase is occurring in people in their 40’s and 50’s.
  5. Energy demand is showing signs of softening in various countries in Asia as tourism remains lackluster.
  6. Significant OPEC cheating is occuring (Iran, Iraq, Libya, Nigeria and Venezuela)
  7. US production has recovered by 1.4Mb/d so far. The IEA in their recent monthly report noted “global oil inventories and supply remain plentiful”. The Federal Reserve of Dallas sees the break-even price for crude in the State at US$50/b, providing lots of incentive to add barrels now.
  8. A stronger US dollar has a negative impact on commodity prices. The US dollar has risen recently to 93.32.

Bullish support for crude prices:

  1. OPEC is planning a meeting tomorrow (April 1st) to discuss production levels for May and it appears that the Saudi line is to continue current levels into the end of June with only moderate increases for Russia and Kazakhstan. They will put pressure on the many cheaters.
  2. Seaborne crude may take longer to reach consuming nations that have low inventories. Most large consuming nations have strategic reserves so overall not a big impact.
  3. Speculative hedge funds have lowered their long positions by 73Mb to a net short level of 824Mb.
  4. Refineries will be building inventories to produce products for the summer driving season.
  5. Vaccination rates are rising around the world providing a desire to get back to normal this summer. All who want vaccines in the US should have them by the July 4th holiday.

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 most companies for Q4/20 have been released and many were not strong enough to justify current lofty stock price levels. If crude prices retreat below US$50/b these stocks will get battered.

CONCLUSION:. 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 1.76% more than triple the 0.52% of last August. 

Three weeks ago we got a second 100% Bullishness signal from the S&P Energy Bullish Percent Index 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. We are now at 65.2% bullishness so there is quite a distance downward before the next BUY signal could occur and we will notify subscribers immediately.

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 three weeks ago. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 111.59 (the low close last week) 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 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 is moving for all of our covered 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.

Our April Interim Report will be out next week Thursday April 8th and will include updates on 13 of our Coverage List companies. This should make for interesting reading for subscribers so they can focus on favourite ideas to BUY when we get the next low risk BUY signal (potentially late April or during May).

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. Our coverage in the April SER Monthly will rise to 32 companies. 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

Scientists Implant and Then Reverse False Memories in People

Posted by Sofia Quaglia

on Wednesday, 31 March 2021 8:31

 

Researchers have demonstrated just how easy it is to trick the mind into remembering something that didn’t happen. They also used two very simple techniques to reverse those false memories, in a feat that paves the way for a deeper understanding of how memory works.

Our brains are far from perfectly functioning recorders of our life events.

The human memory system is fallible and malleable, so much so that it is possible—and even quite common—for people to possess false memories. Memory glitches can lead to all sorts of wider social implications, especially in the legal and forensic field. But now, for the first time ever, scientists have evidence showing they can reverse false memories, according to a study published in the journal Proceedings of the National Academy of Sciences.

“The same way that you can suggest false memories, you can reverse them by giving people a different framing,” the lead researcher of the paper, Aileen Oeberst, head of the Department of Media Psychology at the University of Hagen, told Gizmodo. “It’s interesting, scary even.”

Short-term memory allows us to be present in the moment, while long-term memory helps piece together our identity through the recollection of our past experiences, among other things. Yet, especially the farther back we go, the more our recollection gets murky. For example, when you think back to your childhood, you are reconstructing your past while also being affected by the current circumstances: who is asking, why, and how, Oeberst explained.

“As the field of memory research has developed, it’s become very clear that our memories are not ‘recordings’ of the past that can be played back but rather are reconstructions, closer to imaginings informed by seeds of true experiences,” Christopher Madan, a memory researcher at the University of Nottingham who was not involved in the new study, told Gizmodo.

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Giant Next-Gen Container Ships Will Make Ever Given Look Like Toy

Posted by David Fickling

on Wednesday, 31 March 2021 8:15

 

If you think the ultimate reason the Suez Canal got blocked last week is because container ships are getting too big, get ready for the future. The next few generations of cargo vessels are going to make the Ever Given look like a bath toy.

 

Big enough to carry 20,124 twenty-foot equivalent units, or TEUs — the standard measure for cargo, representing a single shipping container — the Ever Given was one of the world’s largest such vessels when it was launched in 2018. The first container ship to break the 20,000 TEU mark had been at sea for less than a year. One famed 1999 study, written at a time when the largest boats carried less than 8,000 TEUs, argued it would prove impossible to build craft bigger than 18,000 TEUs.

 

The Ever Given, finally floating on its way again, is now distinctly in the second class of mega freighters. There are nearly 100 ships carrying more than 20,000 TEUs on the seas or under construction, and the bigger vessels being assembled in Chinese and South Korean shipyards are mostly around the 24,000 TEU mark. A quarter of the capacity moved by the world’s largest container line, AP Moller-Maersk A/S, is on boats above the 17,500 TEU mark.

 

That’s unlikely to be the end of it. Chinese shipyard Hudong-Zhonghua Shipbuilding Group Co. has already registered designs for a 25,000 TEU vessel, and it has become relatively commonplace to predict that 30,000 TEU monsters will be plowing the oceans before the decade is out.

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Record Revenue for Adcore

Posted by MoneyTalks Editor

on Tuesday, 30 March 2021 14:05

Israeli-founded digital advertising firm Adcore (ADCO) began trading on the TSX Venture exchange less than a year before the COVID pandemic lockdowns began in early 2020. While that uncertainty created short term challenges in the market and with their business plan, the company has roared back with results that are thrilling both early and new investors.

Adcore was first introduced to our audience by Ryan Irvine and the team at Keystone Financial as one of their researched recommendations. CEO Omri Brill subsequently presented as part of the 2021 World Outlook Financial Conference Small Cap Investing series (CLICK HERE to watch).

The company just released it’s 4th quarter and full 2020 financials yesterday, and the revenue growth is nothing short of spectacular, up 219% for Q4 to $13.3 million and up 52% to $22.8 million for the full year. Adcore is one of those companies that has benefited from the shift to a stay-at-home economy. Their digital advertising technologies have become essential to clients around the world who now rely almost entirely on e-commerce revenue.

“We rebounded from a challenging first half of 2020 to an astonishing all-time high in revenues,” explained CEO Brill. “And we see the shift in consumer behavior and the effectiveness of digital advertising continuing in 2021.”

It also helps that Adcore stayed true to it’s aggressive strategic initiatives. In the past year the company announced new and expanded relationships with industry behemoths Shopify, Facebook and Microsoft. 2020 saw the opening of offices in Hong Kong, adding to the Tel Aviv, Melbourne and Toronto locations. A second China office was opened in Shanghai in early 2021. The company also graduated to the TSX main board and added a Frankfurt listing as well. A dual US listing is in the works for 2021. And with plenty of cash in the bank Adcore has the ability to continue it’s international expansion.

Adcore’s main challenge, as with many fast growing tech companies, is to ensure it’s bottom line performance keeps pace. EBITDA remains positive but did not move up relative to revenue. Investors are willing to be patient with such positive and bullish growth, but new all-time highs bring new and higher expectations.

According to Omri Brill, “this is a pivotal time as global businesses accelerate their digital transformation. We stand ready to help them increase their presence, brand recognition and success in the digital marketplace.”

 

A slew of big banks involved are warning of “significant losses”

Posted by Yun Li CNBC

on Tuesday, 30 March 2021 8:04

 

The woes that arose from Archegos Capital Management at the end of last week bled into Monday as a slew of big banks saw their share prices decline.

Here’s how the $20 billion blowup unfolded.

U.S. media stocks ViacomCBS and Discovery experienced severe selling pressure on Friday, with each losing more than 27%.

A few Chinese internet ADRs including Baidu, Tencent and Vipshop also suffered sell-offs of a similar magnitude last week.

ADRs are American depositary receipts, essentially a certificate that represents a share of a foreign stock and is traded on American stock exchanges.

The culprit for the massive selling was a forced liquidation of positions held by the multibillion-dollar family office Archegos, CNBC reported.

Archegos, founded by former Tiger Management equity analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over the counter or among themselves without having to disclose the holdings publicly.

These swaps usually involve higher-than-usual leverage.

These large, leveraged bets came under pressure after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart, which triggered broad selling in the name.

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