We are holding our Q4/24 quarterly webinar next Thursday November 28th at 7PM MT and this will be an important one for attendees. We plan to cover the incoming Trump administration and its impact on Canada and focus on how this might affect our energy sector. A big part of the webinar will be about the bargains that have developed in energy stocks (particularly E&P names) during this season’s tax loss activity window into mid-December. This will be one of our most important webinars of the year and give our subscribers some great bargains to consider for their portfolios. To join us one needs to become a subscriber.
Global Economic, Political & Military Update
President elect Trump is moving quickly to nominate his cabinet full of loyalists that want to reign in the size and power of the perceived swamp in Washington. Many of his nominees are being readily accepted but one for Attorney General is getting widespread condemnation. He has nominated strong people for State, Defence, HHS, Interior and Energy and these individuals once confirmed will be taking scyths to their departments to cut wasteful spending and to remove the neo-conservative culture that is the deep state. It would not surprise me to see the regulations reviewed and if seen as intrusive and not to the benefit of Trump’s ‘America First’ policy, terminated.
President Biden and his neo-cons want to hamstring/hobble the incoming administration by sending more aid to Ukraine and have now allowed Ukraine to fire longer range missiles into Russia. These weapons provided by the US were allowed only for defensive purposes but now for offense. The missile range of these ATACMS missiles is 300 KM’s whereas prior approved weapons had a range of 150 KM’s. These weapons destroyed a military weapons depot deep in Russia. Putin is furious and has loosened the threshold to use nuclear weapons. With the war now just over 1,000 days, and with President Trump re-entering office on January 20th, hamstringing Trump seems to be Biden’s good-bye gift to Trump’s desire for a diplomatic solution. Russia sees this as a “qualitatively new phase of Western war against Russia”.
Some other items on this war front are:
- The US has closed its embassy in Kiev as it expects a significant attack by Russia before Inauguration day.
- Russia changed its nuclear weapons use with a new doctrine allowing for potential use of a conventional attack on Russia by any nation that is supported by a nuclear power (US & UK for example).
- A vital undersea communication cable from Finland to Germany was cut in an act of sabotage. Is this a prelude to a new expanded war phase?
- Russia now has 50,000 troops (including 10,000 North Korean soldiers) ready to destroy or chase out the Ukrainian forces that invaded the Russian area of Sumy. Putin wants this won before Trump enters office so he is in a better bargaining position for a diplomatic solution. This winter offensive should start shortly. North Korea has added long range artillery pieces to their forces for this battle.
Economic, Stock Market Update:
Some of the interesting economic and market data points over the last week are:
- China is seeing some green shoots on the export side while the domestic economy stays weak. Exports rose 12.7% in October, however Imports fell 2.3%
- Singles day shopping in China saw sluggish sales as consumers save as they see rising unemployment and more layoffs.
- US Core CPI rose 3.3% above last year making a rate cut in December questionable now. The major increases came from higher rents (up 5%), higher airfares (up 8%), and food (up 4%).
- Economists are predicting which countries will be hurt by incoming Trump tariffs. Mexico, China, Vietnam and Canada top the list. We will discuss the impact on Canada during our upcoming webinar on November 28th.
- US Retail Sales rose 0.4% in October better than the 0.3% expected.
Regarding energy,
Our 2H/24 WTI price target of US$66-69/b was reached once and is likely to do so again in the coming weeks. It could occur during the tax loss selling season between mid-November into mid-December. Today WTI is at US$69.55/b as it holds a US$3/b war premium due to the use of longer range missiles by Ukraine.
We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66-68/b) from today’s level. If this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued.
If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.
EIA Weekly Oil Data:
The EIA data released today was a bearish report for oil. US Commercial Stocks rose 0.5 Mb and the SPR continued to grow and was up 1.4 MB on the week and by 37.9 Mb above last year. Refinery processing fell 1.4% to 90.2% and is up from 87.0% seen last year. Motor gasoline inventories rose 2.1 Mb. Distillate fuels saw a decline of 0.1 Mb. Total Stocks including the SPR rose 4.4 Mb on the week to 1,633 Mb. This is a staggering 494years of Net Imports. Cushing inventories fell 100 Kb to 25.1 Mb compared to 25.9 Mb in 2023.
US Crude production fell 200 Kb/d to 13.1 Mb/d and is now flat versus 2023 production. Gasoline demand fell 964 Kb/d to 8.42 Mb/d. Jet Fuel demand fell 143 Kb/d to 1.60 Mb/d. Total Product Demand fell 1,812 Kb/d to 19.77 Mb/d with propane demand declining 579 Kb/d to 740 Kb/d. Year-to-date, US Total Demand is up 0.1% versus 2023. Gasoline demand year-to-date is up 0.2% from last year’s 8.86 Mb/d.
OPEC Monthly Report
The November 2024 report released November 12th showed that in October, OPEC saw a production increase of 466 Kb/d due to Libya’s production returning to over 1.0 Mb/d (up 556 K b/d to 1.096 Mb/d). The fight over revenues between the eastern and western thugs seems to have been resolved for now. Nigeria added 35 Kb/d to 1.434 Mb/d. Cuts occurred from Iraq (down 66 Kb/d to 44.07 Mb/d – due to excess quota production) and from Iran (down 68 Kb/d to 3.26 Mb/d – less China demand).
Canada now is number four in the world production rankings. First is the US at 22.6 Mb/d, then Russia at 9.0 Mb/d, then Saudi Arabia at 8.97 Mb/d and then Canada at 5.9 Mb/d. Below us is China at 4.6 Mb/d. We could be producing so much more if there was support at all levels of government and we could add more takeaway capacity. That is more a possibility once the new Trump administration returns to power in January.
China demand continues to weaken (diesel demand down 4.1% in September 2024) and the data for India showed a decline of 1.1% in September as Other products showed a decline of 8.5%.
EIA Weekly Natural Gas Data
The natural gas report out last week showed an increase in storage of 42 Bcf, with the largest rise in the South Central area at 19 Bcf. This compares to a withdrawal of 6 Bcf last year and the 5-year average injection rate of 18 Bcf. With winter here, withdrawal rates should pick up significantly. We expect to see withdrawals over 200 Bcf per week this winter season. Storage is now at 3.97 Tcf. US Storage is now 4.1% above last year’s level of 3.82 Tcf and is 6.1% above the five year average of 3.75 Tcf. The percent differences are clearly shrinking and when they go negative natural gas prices should rise materially. NYMEX is today priced at US$3.19/mcf. Spikes over US$5/mcf should be seen this winter during very cold days when electricity systems are maxed out. US LNG exports to the seven operating LNG plants rose to a nine-month high 14.4 Bcf/d. Some plants are now exceeding the name plate. Cameron LNG (rated at 2.0 Bcf/d is now moving 2.3 Bcf/d), Cheniere’s Sabine Pass (rated at 4.5 Bcf/d is moving 4.9 Bcf/d). Two new plants are being ready for start-up before year end.
We recommend buying the very depressed natural gas stocks during periods of market weakness as we are seeing with this year’s tax loss activity. These stocks are very cheap now. We see much much higher gas prices in 2H/25 as quite a number of new LNG plants come onstream over the next 12 months; one in Canada and three in the US. In Canada the first train of LNG Canada comes on and in the US, Plaquemines LNG Phase 1 (1.8 Bcf/d) and Corpus Christi Stage 3 begin production of LNG (1.5 Bcf/d). In 2025, Golden Pass LNG plans on bringing on the first two trains of this new three train export facility.
Baker Hughes Rig Data
In the data for the week ending November 15th, the US rig count saw a decline of one rig to 584 rigs. Rig activity is now 5.5 below the level of 618 rigs last year. Of the total rigs working last week, 478 were drilling for oil and this is 4.4% below last year’s level of 500 rigs working. The natural gas rig count is down 11.4% from last year’s 114 rigs, now at 101 rigs. This decline in drilling and production should continue for a few more months as the industry wants to see natural gas inventories below average and for prices to recover and stay over US$3.00/mcf for a number of weeks (now week one). Weak WTI prices should slow energy companies drilling plans for 2025 and maybe see them cut back drilling on lower productivity wells over the remainder of this year.
In Canada, there was a seven rig decrease to 200 rigs but this is 2 above last year’s 196 rigs. The industry needs north of $2.50/mcf to see the economics attractive to drill dry gas wells. As we get closer to LNG Canada ramping up in 1H/25 and natural gas fills the Coastal GasLink pipeline, prices should lift. AECO prices are at uneconomic prices below $1.00/mcf. The gas drilling rig count is down two rigs this week to 63 rigs and is 13.7% below last year’s level of 73 rigs. Crude rigs fell five on the week to 137 rigs but are up 11.4% from last year due to strong Canadian converted crude prices.
Energy Stock Market
The S&P/TSX Energy Index today is at 282, up 3 points since our report two weeks ago. Our downside target for this indicator is below 240 (range 230-240) and we see this happening during tax loss selling season during Q4/24. We like to BUY when stocks are cheap and being ignored which is now occurring. Bargains are clearly now our focus for new recommendations. WTI has traded between US$65.27/b and US$78.46/b over the past two months. The higher end when there are war actions in the Middle East with Iran involved and the lower end when weak demand data is released as we saw from the US data yesterday.
Investors should decide what you want your energy weighting to be for this long energy super cycle. Our BUY List includes ideas from the Pipeline & Infrastructure area, Canadian oil and natural gas ideas, energy service ideas and companies working internationally. Our list includes large Conservative ideas and small to large caps in our Growth and Entrepreneurial categories. Add to your current ideas or add new ideas. We expect that WTI should lift above US$90/b in 2H/25 and demand should exceed supplies at that time. We see WTI prices above US$100/b consistently during 2026.
If you would like to keep up with our recommended BUY list, join our webinar next week and receive future Action BUY Recommendations become a subscriber. https://schachterenergyreport.ca/subscriptions/
