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Market Sentiment Watch:
- Increased U.S. China tensions,
- U.S. Covid stimulus in question,
- Busier week on the energy data front (EIA STEO, OPEC Monthly, IEA Monthly)
In today's post please find:
- The Week That Was,
- The Five Things,
- an updated 2Q20 calendar that adds week #4,
- a quick update of WKHS 2Q results,
- and some other odds and ends.
Ecodata Watch:
- We jet job openings at 10 am EST (no forecast, last read was 5.4 mm).
The Week Ahead:
- Tuesday - NFIB small business, PPI, EIA STEO,
- Wednesday - CPI, federal budget, EIA oil inventories, OPEC monthly,
- Thursday - Jobless claims, import prices, EIA natural gas storage
- Friday - Retail sales, productivity, unit labor cost, industrial production, capacity utilization, consumer sentiment, business inventories.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- The Week That Was
- Stuff We Care About Today - The Five Things, Calendar Update, WKHS
- Odds & Ends
Holdings Watch:
ZLT (Zman Long Term portfolio)
- Last Week’s Trades: Added to and then sold all of our GPOR risk gas position. Added to a our MR core position.
- The Blotter is updated.
Commodity Watch:
Crude oil rose 2.4% to close at $41.22 last week with the strip rising similarly ending at $42.76. We see prices as near the upper end of the near term range. The potential for another sizable draw on crude stocks is elevated this week but we also get reports from EIA (STEO) and OPEC and IEA that can drive near term prices. Over the next few week we are concerned that oil could come under pressure due to a combination of seasonal throughput retreat and over stored product inventories. This morning crude is trading up $0.60.
- Libya Watch: The head of Libya's NOC warned that armed conflict at it's ports could leaded to a disaster worse than Beirut. Libya's production is said to be blow 0.1 mm bopd currently.
Natural gas was again in major rally / short covering mode last week, rising 24% on prompt month gas to end at $2.238 and more importantly up 8% on the strip to close at $2.75.
- Storage remains just short of record territory.
- The supply / demand balance continues to slowly improve.
- We expect a larger storage build this week (similar to last year's build) and a smaller build next week.
- This morning gas is trading flat.
Weather Watch:
- Last week: Cooling Degree Days (CDDs) came in at 69 vs 73 normal and 90 in the prior week.
- This week's forecast: This week, CPC predicts CDDs will rally to 91 vs 69 normal.
The Week That Was
Stuff We Care About Today
The Five Things (weekly change in red)
- Coronavirus:
- Cases are rising, the pace of rise is slowing in some states. We've seen less about moves to rollback re-openings and schools are opening in a number of states.
- U.S. death toll is climbing more swiftly again as expected.
- A number of vaccines will enter Phase 3 trials now through September.
- Several existing drugs are showing efficacy as treatments.
- The extra $600 per week in unemployment benefits expired at the end of July. Congress and Administration talks failed. The president signed executive orders that appear to split the difference on what the two parties want although last we checked he does not have the power of the purse.
- Production Curtailments, Guidance, Rig & Spread Counts, and Tank Tops:
- Curtailments - Mostly de-curtailed now. EIA weekly read on L48 oil production is starting to actually reverse lower now, again.
- Production and Capex Guidance - guidance was re-initiated for a few of the names with the 2Q calls. Expect more to re-establish official guidance 3Q and guide more officially for 2021 early (with the 3Q calls this year).
- Rigs have fallen sharply since March 2020. As expected the pace of reductions has slowed recently. Rigs are likely to ebb into 4Q unless prices move consistently/apparently sustainably over $40.
- Frac Spreads Stabilizing. As expected, the frac spread count is stabilizing after a late spring move below 50. Operators will use DUCs to try to stave off natural production declines.
- LBRT thinks frac spreads will be at 100 in the U.S. by year end 2020
- LBRT thinks we need 165 spreads to hold oil flat in the U.S. in 2021.
- LBRT thinks we need an additional 80 spreads beyond that to grow U.S. production by 1 mm bopd in 2021.
- LBRT thinks we need 25 to 30 spreads to maintain natural gas production.
- This means, to maintain oil and gas production in 2021 at the then current end of 2020 levels we need 190 to 200 spreads.
- Current active spread count is 70, down 6 from the prior week.
- Oil in storage is at 61% of U.S. working capacity last week.
- Distillate Stocks: 83% of capacity (new high again this week). This is an especially troubling level especially given time of year. Much more build here and we are likely to see throughput recovery become more muted.
- Natural Gas Sentiment: Cautious but improving as the 2021 Strip firms markedly)
- Exports are temporarily down solely due to LNG and they appear to be bottoming now and set to rally into 4Q20.
- Dozens of cargoes were cancelled for June and July and we understand a smaller amount were cancelled for August and September as well.
- We noted that China announced in April it will be taking shipments from the U.S.
- Lower LNG prices are prompting some Asian countries to switch from coal to LNG faster than expected.
- LNG exports: 3.8 Bcfgpd (just off recent lows of 3.2) vs the weekly average record of 9.6 Bcfgpd set in early 2020.
- AR sees LNG exports back to the 7 to 8 range on better international demand and pricing in late 2020.
- Non heating demand remains solid to near record.
- Summer temps are here. We expect this to drive strong gains in gas-fired generation in the very near term. So far so good.
- Production
- Was down 8.2 Bcfgpd last week, from the highs set in November 2019,
- Production is down to in line with year ago levels depending on the week now.
- Shale gas production is down 5.5% (4.0 Bcfdpg) through mid year.
- Production has fallen almost weekly over the last several months.
- Supply (production plus net imports) is ranging from up 2 to down nearly 5 Bcfgpd vs the year ago level due to exports and easing production.
- The net short position is approaching neutral (best level of the year this week).
- Subdued oil prices and the expected further reduction in the oil production forecast for the U.S. is leading to some natural gas group sentiment improvement.
- Election 2020: We await Biden's VP pick (it should be this week). Biden has rolled out an economic plan including higher corporate taxes. For upstream names, we are more concerned about changes to SEC reserves rules than we are to frac bans on federal lands at this time. We see Warren as increasingly unlikely to be granted a VP slot which would be worse for oil and gas in the U.S. In Colorado the political theater regarding frac bans appears to be on hold through 2022. Polls show Trump at a distinct disadvantage to Biden at this time and we are seeing an increasing amount of sellside commentary that U.S. oil and gas stocks are not discounting a Biden win enough (meaning they should be lower). We are of mixed minds on this. Biden would likely only limit fracs on federal lands. This would lift oil and potentially natural gas prices.
- Alternative Energy: Sentiment continues to improve and we are now just over 50% renewables/green. This likely ties in with #4 (Election 2020) above but also relates to extended tax credit timelines, and the ongoing global corporate effort to focus on ESG. We are seeing a big push for H2 in Europe and elsewhere. We noted over the weekend a bank in Denmark said it will no longer provide auto loans for ICE vehicles. Biden's plans for renewable energy point to 1,000's of new wind turbines, millions of solar panels, and 10's of thousands of EV chargers in his first 4 years.
2Q20 Energy Calendar Update - Adds Week 4 - if you know of names we are missing please let us know.
Please see the link at upper left for details
WKHS (unowned) Reports Startup 2Q20 Results; Reaffirms 2020 Delivery Target
- Revenue of $0.092 mm vs $0.27 mm expected,
- To see our initial write up of WKHS click here.
- Delivered 3 C-series vans (Ryder, Electric Fleet Solutions),
- Now only medium duty BEV permitted to sell in all 50 states
- Reaffirms 300 to 400 deliver target for 2020.
- Noted their 10% ownership in Lordstown valued to their share at $160 mm,
- $105 mm in cash on hand. Notes most of the interest expense jump is non cash on a convertible mark to market
- We're just here to learn for now. That and our ownership in TPIC who makes their bodies.
- Conference Call: Today, 10 am EST.
Other Stuff
- Look for a requested name update later this week,
- Look for the gassy Players update in Wednesday's post,
- Look for a number of cheat sheet updates this week,
- Look for a free piece to go to Seeking Alpha on TPIC early this week.
Odds & Ends
Analyst Watch:
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