I will be away over the next two weeks travelling so the next Eye on Energy will come out on December 18th.
We are holding our Q4/24 quarterly webinar tomorrow night 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. https://schachterenergyreport.ca/subscriptions/
Global Economic, Political & Military Update
President elect Trump is moving quickly on his tariff plan with a threat on social media to tax Canada and Mexico 25% and add 10% to China tariffs. His argument is that he needs support on keeping drugs out of the US and to stop the migrant invasion. If his need was economic he would have focused on specific economic problems with Canada and Mexico. This seems to be a political trial balloon to throw angst into the political calendar while he waits for his inauguration on January 20th. Both Mexico and Canada’s currencies have fallen as a result of this threat.
Mexico has taken an adamant stance against this threat. Canada’s tone has been more toned down as the Federal and Provincial Governments work to get a united front if this is real and not just a typical Trump bargaining posture. Quebec and Ontario get hurt quite a bit if this is implemented. Ontario’s large auto sector would be impacted but so would the US’s as they are integrated on parts and product offerings. Quebec would get hurt on autos but also aluminum, lumber and aerospace. Alberta and Saskatchewan would be hurt significantly on energy. We don’t buy into this concern as most of our 4 Mb/d of crude exports go to US refineries in the Midwest and the Gulf coast and there is no alternative to Canadian heavy crudes to these markets. It would lift prices to consumers materially and this is the reverse of one of Trump’s key platforms of lower energy prices for US consumers. The states affected will be alarmed and will be lobbying for Canadian heavy crude to be exempted (natural gas would also be lumped in with the increase in costs affecting the area’s consumers). Remember it was the key midwest swing states that gave Trump his electoral college victory. He also would not be waving the Keystone Pipeline being built if he was not thinking about a continental energy policy.
Canadian energy stocks are flat today after a smackdown yesterday.
Crude oil has retreated US$2/b over the last week as Israel and Hezbollah have agreed to a 60 day ceasefire that can be extended if there are no attacks from either side. Hezbollah has agreed to move its forces north past the Litani River and Israel would withdraw its forces back into Israel. In the south, forces from Lebanon’s army and UN forces would patrol the area. President Biden wants this US sponsored deal to extend to Hamas ending its attacks on Israel and releasing all the hostages (those alive and the bodies of those dead). Iran is key to this deal with Hezbollah and may arm twist Hamas to a deal as they know that they are a key focus of Trump’s and may want to offer an olive branch so that his rhetoric is less warlike. Remember they held hostages from the US embassy during the Carter administration, and released them minutes after Reagan was sworn into office.
Economic, Stock Market Update:
Some of the interesting economic and market data points over the last week are:
- US GDP grew at a 2.8% pace in Q3/24 in line with the forecast.
- US October Durable Goods Orders were positive (up 0.2%) compared to a decline of 0.8% in September.
- Core PCE inflation came in at 2.1% just below the forecast of up 2.2%.
- The US Trade Deficit came in at US$99B below the forecast of US$102B but a number that has the incoming administration focused on fairer trade and for the US to have a much lower trade deficit. What needs to be remembered is that the US has a surplus when it comes to financial transactions.
- Very cold weather in Europe has lifted TTF natural gas prices to US$16.10 per mmBtu. Asia prices have risen to over US$15 per mmBtu as they compete for LNG cargoes.
- Coffee is going to be more expensive as Arabica futures as supplies in growing countries are poor this year. Arabica Coffee futures have gained 60% this year.
Regarding energy,
Our WTI price target of US$66-69/b was reached once and is likely to do so again in the coming weeks before year end. Today WTI is at US$68.72/b as it holds a small US$2-3/b war premium due to the ongoing escalations in the Ukraine/Russia war.
We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66/b). 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 moderately bullish report for oil. US Commercial Stocks fell 1.8 Mb while the SPR continued to grow and was up 1.2 MB on the week and by 38.8 Mb above last year. Refinery processing rose 0.3% to 90.5% and is up from 89.8% seen last year. Motor gasoline inventories rose 3.3 Mb. Distillate fuels saw a rise of 0.4 Mb. Total Stocks including the SPR fell 0.6 Mb on the week to 1,632 Mb. Cushing inventories fell 1.0 Mb to 24.1 Mb compared to 27.7 Mb in 2023.
US Crude production recovered 292 Kb/d to 13.5 Mb/d (the record high so far) and is now up 300 Kb/d versus 2023 production. Gasoline demand rose 87 Kb/d to 8.51 Mb/d. Jet Fuel demand rose 300 Kb/d to 1.90 Mb/d. Total Product Demand rose 700 Kb/d to 20.47 Mb/d with propane demand rising 945 Kb/d to 1.69 Mb/d. Year-to-date, US Total Demand is up 0.3% versus 2023. Gasoline demand year-to-date is up 0.2% from last year’s 8.86 Mb/d.
EIA Weekly Natural Gas Data
The natural gas report out last Thursday showed the first decline of the withdrawal season. It was a small number but a key decrease. Storage fell 3 Bcf to 3.97 Tcf with the largest decline in the East with a 12 Bcf withdrawal. This compares to an increase of 60 Bcf last year and the 5-year average injection rate of 36 Bcf. With winter here, withdrawal rates should pick up significantly. We expect to see withdrawals over 200 Bcf per week this winter season. US Storage is now 3.7% above last year’s level of 3.83 Tcf and is 6.4% above the five year average of 3.3Tcf. The percent differences are clearly shrinking and when they go negative natural gas prices should rise materially. NYMEX is today priced at US$3.25/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 at 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 readied 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.
holiday special
We are offering a special deal for new subscribers for the holiday season. Get $100 off for your first annual term with code HOLA24 or $50 off your first quarter term with code HOLQ24. Now is a great time to subscribe as it is tax loss selling season and there are tonnes of bargains to get in on. To subscribe click on the link below and make sure to type in the coupon code. https://schachterenergyreport.ca/subscriptions/
Baker Hughes Rig Data
In the data for the week ending November 22nd, the US rig count saw a decline of one rig to 583 rigs. Rig activity is now 6.3% below the level of 622 rigs last year. Of the total rigs working last week, 479 were drilling for oil and this is 4.2% below last year’s level of 500 rigs working. The natural gas rig count is down 15.4% from last year’s 117 rigs, now at 99 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 two). 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 one rig increase to 201 rigs and this is four above last year’s 197 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 $1.50/mcf (but up $0.50/mcf over the last week as winter hits western Canada). The gas drilling rig count is up four rigs this week to 67 rigs but this is 8.27% below last year’s level of 73 rigs. Crude rigs fell four on the week to 133 rigs but are up 7.3% from last year due to the weak Canadian dollar and crude prices are in US dollars.
Energy Stock Market
The S&P/TSX Energy Index today is at 278, down four points from last week. Our downside target for this indicator is below 240 (range 230-240) and we see this happening during the current tax loss selling season. 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 few months. The higher end when there are war actions in the Middle East with Iran involved and the lower end when weak crude demand data is released.
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 tomorrow night and receive future Action BUY Recommendations and become a subscriber. https://schachterenergyreport.ca/subscriptions/
