The next decline in crude oil prices should trigger a new long-term buy signal. Normally just one of the three signals we watch is sufficient for us to send out BUY recommendations. This is what happened in September (September 10th) when WTI fell to US$66/b and we sent out an Action BUY signal and added five new energy ideas to our BUY list. We are watching our three indicators (WTI price, S&P/TSX Energy Index level and the S&P Energy Bullish Percent Index) and we may see more than one of these signals triggered in the coming weeks. When this happens we will send an email to SER subscribers with new BUY ideas and note those stocks that are at bargain levels for subscribers to consider. This next BUY window may see more than one signal being triggered at the same time which historically has been a high reward situation. The last time this occurred was in March 2020, a very rewarding BUY window.
Global Economic, Political & Military Update
The official US President Joe Biden is not being seen and his vacuum is being filled by President elect Trump and his entourage led by Elon Musk (seen by Democrats as either the President or Trump’s Prime Minister). Biden lieutenants are looking for new ways to degrade or demean Trump before he takes office. However it is not working as more reports come out from the White House that senior Democrats were covering for the impaired President Biden since 2021. He was seen on his good days and meetings were cancelled or postponed on his bad days. His non-elected neo-con staffers in the Executive branch were making the decisions for him. Of concern is that these hawks were moving decisions forward to increase the chance of an expanded war between Russia and Ukraine. This would have NATO directly involved which means that the US would be at war with Russia. Fortunately President Putin has not been entrapped and he appears to want to wait for after Inauguration Day to talk to President Trump and see if a diplomatic solution is achievable.
The US Congress dodged another funding bill crisis with a last day deal. The original bill was 1,547 pages and included a lot of wasteful pork-barrel spending that Democrats wanted. They demanded these incentives to pass the bill knowing that some Republicans would not support such spending when most were focused on cutting spending. The Speaker made a mistake and got this bill taken down by President-elect Trump and Elon Musk who went on X denouncing many of the wasteful spending included. President Trump wanted a clean deal with only funds for disaster relief (the hurricanes of 2024) and funds for farmers. His stretch request was for a debt ceiling extension to 2027. The final deal removed the pork, was less than 10% of the pages of the original bill but did not give Trump his debt ceiling request. Democrats are declaring victory over hampering Trump over the debt ceiling denial but for Americans the removal of hundreds of billions of pork spending wanted by Democratic Congressmen and women was the victory. So during Q1/25 President Trump will be focused on getting the border closed, deporting illegal immigrants with criminal records, reversing Biden’s egregious spending and regulatory policies, using DOGE to start shrinking the size of the US government and reverse the neo-cons march to WWIII.
In our upcoming first SER issue of 2025 to come out on January 16th we plan to cover the following topics which will impact the markets. If these are of interest to you, become a subscriber.
- Inflation may be re-igniting. Food costs led by eggs due to the flu disease as well as ranchers culling herds due to poor economics will lead to much higher food inflation in coming months.
- Job openings are shrinking so this may be a predecessor of recession. We saw this in 2001 and 2019 and recessions occurred thereafter.
- US long term Treasury yields have lifted nearly 50 BP despite the Fed lowering its short term Fed Funds rate. The 10-year yield has lifted to 4.59% (December 23rd) from 4.13% in early December. What is happening? Has crowding out started?
- Both the Bank of England and the US Fed are so worried about another round of bank failures that they are not releasing their moves until after the failed bank has been resolved. They did not do this in 2008 – 2009.
- Will Trump’s Tariffs hurt or help the US economy and what impact will that have on the rest of the world.
- The US Dollar has been very strong since late September rising from 99.86 to 108.29 last week. What is in store for the US Dollar in 2025?
- Many countries are facing budgetary crises and are seeing rates rise sharply. Why we may see a Sovereign debt crisis in 2025 which will result in a rush to hide in a safe place – that being the US.
- President Elect Trump is calling for ‘drill baby drill’ but also for gas prices to be cut in half. Why this is hyperbole and not realistic.
- Why we see commodities being a big winning part of the markets in 2025 and energy (especially crude oil) will be the largest contributor to this upside. We were cautious in 2024 and now we are again against the consensus.
Ukraine/Russia – Moves before January 20th
Ukraine is working to get more support from Europe before President Trump uses the US military and financial support hammer to get a peace deal done. Ukraine worries that Trump will move to demand official land concessions (Eastern Ukraine and Crimea) that Ukraine is unprepared to make.
Russia is speeding its attacks against Ukraine’s forces that invaded Kursk. Putin wants to expel the invaders before January 20th. It would give him more bargaining power when President Trump pushes for a diplomatic solution. Ukraine is sending in more forces to make this difficult but from the battlefield they have lost over half of their initial invasion capture. Large concentrations of Russian and North Korean forces are driving the land recovery operation. From reports over 1,100 North Korean troops have been killed so far in this offensive. North Korea is sending more ammunition, rocket launchers, suicide drones and self-propelled artillery to aid Russia as their relationship expands. North Korea is gaining modern warfare experience, food aid, crude oil and money from Russia. There have been talks of even more soldiers being sent to Russia for training and then sent to the battlefield.
Regarding energy,
Our WTI price target of US$66-69/b was reached in September and is likely to do so again in the coming weeks. Today WTI is at US$70.02/b. 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). When 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 for this week will be released on Friday December 27th due to the holidays. We will include the data in our next Eye on Energy to be released on December 31st.
EIA Weekly Natural Gas Data
The natural gas report out last Thursday showed the second largest withdrawal of the season so far. Storage fell 125 Bcf to 3.62 Tcf with the largest decline in the Midwest with a 48 Bcf withdrawal. This compares to a decrease of 87 Bcf last year and the 5-year average withdrawal rate of 63 Bcf. With winter here, withdrawal rates should pick up significantly. We expect to see many weeks of withdrawals over 200 Bcf per week this winter season. US Storage is now 0.6% above last year’s level of 3.60 Tcf and is 3.8% above the five year average of 3.49Tcf. The percent differences are clearly shrinking and when they go negative on a comparison basis natural gas prices should rise materially. NYMEX is today priced at US$3.84/mcf. Colder weather expected in the coming week in the east coast of the US has lifted prices. 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). Global Ventures Plaquemines LNG Phase 1 (2.6 Bcf/d) commenced operations recently. It continues to build other trains as this will be the largest LNG plant contemplated so far in the US as It took only 30 months to complete after receiving the final investment decision (FID). Too bad we can’t move so quickly on this side of the border.
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 two more in the US. In Canada the first train of LNG Canada comes on during Q2/25 and in the US Corpus Christi Stage 3 begins 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.
THERE IS ONE WEEK LEFT – PLEASE TAKE ADVANTAGE OF THIS VERY SPECIAL ANNUAL SER SUBSCRIBER DEAL.
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 December 20th, the US rig count saw rigs hold at 589 rigs. Rig activity is now 5% below the level of 620 rigs last year. Of the total US rigs working last week, 483 were drilling for oil and this is 3% below last year’s level of 498 rigs working. The natural gas rig count is down 15% from last year’s 120 rigs, now at 102 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 remain over US$3.50/mcf for a number of weeks. 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 25 rig decrease to 166 rigs due to the winter year end slowdown for holidays for staff. This however is still 20 rigs above last year’s 146 rigs, or up 14%. 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 $1.80/mcf. The gas drilling rig count is down 15 rigs this week to 56 rigs and this is 14% below last year’s level of 65 rigs. Crude rigs fell 10 on the week to 110 rigs but are up 36% from last year’s level of 81 rigs due to the weak Canadian dollar (US$0.698) and crude prices are in US dollars.
Energy Stock Market
The S&P/TSX Energy Index today is at 260, up four points since our report last week. Our downside target for this indicator remains below 240 (range 230-240 – not that far away) and we see this happening over the coming weeks. 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.
We expect we are close to another low risk entry point like we saw on September 10th when we sent out an Action Alert BUY with five new BUY ideas. In the next few weeks the oversold condition and tax loss pressure should give us the next bargain BUY window. Keep an eye out for this Action Alert in your email inbox.
If you would like to receive future SER Action BUY Recommendations, become a subscriber. https://schachterenergyreport.ca/subscriptions/
