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Market Sentiment Watch:
- Protests - appear likely to be a slowing effect on the reopening. Our view is that this also sends the chances of an early second wave for Covid-19 zooming.
- OPEC + - potentially meeting this week instead of next,
- China data show unexpected May manufacturing expansion (Markit PMI at 50.7 vs 49.6 expected).
- China / U.S. tensions continue to rise.
Housekeeping Watch:
- It's that doldrums time of year. Even though so far the market has failed to "go way in May" things are generally quiet this time of year in energy land. Please use the site. Participate. Ask questions. If I'm left to my own lack of creative devices the site becomes mechanical, I get bored, and a bored Z is a lazy Z. Thanks.
In today's post please find:
- The Week That Was,
- The Five Things,
- and some other odds and ends.
In case you missed The Wrap please click here. The ZLT was up 6% last week and has been up 8 of the last 9 weeks, in large part driven by stability and rebound in oil and oil service, improved traction in natural gas weighted names and our large position in renewables.
Ecodata Watch:
- We get ISM manufacturing at 10 am EST (no forecast, last read was 41.%),
- We get construction spending at 10 am EST (no forecast, last read was 0.9%)
The Week Ahead:
- Tuesday - Car sales, ISM nonmanufacturing, factory orders,
- Thursday - Jobless claims, trade deficit, productivity, unit labor costs,
- Friday - Nonfarm payrolls, unemployment, average hourly earnings, consumer credit.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- The Week That Was
- Stuff We Care About Today – The Five Things
- Odds & Ends
Holdings Watch:
ZLT (Zman Long Term portfolio)
- Last Week’s Trades: None
- The Blotter is updated.
- Up for 8 of the last 9 weeks and up substantially better than the energy group ETFs which ranged from -1.8% for the XOP to plus 6.6% for the OIH. Strength in the portfolio has been broad based and led renewables and strength in natural gas.
- Eyes on unowned name GPOR for a potential re-entry on a move towards $1. Eyes on ENPH for a potential entry.
Commodity Watch:
Crude oil closed up 4.6% to close at $35.49 last week lifted by "re-openings", word that Russia was in compliance, fairly good compliance by OPEC+ (though not Iraq) and balanced by a not so great weekly out of EIA. The weekly was what we term a low quality miss on a jump in imports from Saudi which won't last. At week's end rigs fell yet again while spreads bounced (good for LBRT). Brent rose 4% as well and the spread to WTI remains at export suppressing levels. Please see The Week That Was for details. This morning crude is trading flat.
- OPEC+ Watch: Meeting this week instead of next? It was supposed to be held virtually on June 10th but there is talk of moving it to this week (June 4th). Also a two month extension of cuts is apparently on the table.
- Near Term Expected Range Watch: REVISED UP TO NEW RANGE OF $32 TO $42 (prompt month), from prior $28 to $35. We are approaching a gap fill from the time of the OPEC+ meeting failure in March (the bottom of the gap is at $42). Saudi imports have arrived. We saw fear the imports, buy their actual arrival last week. Rising gasoline demand in the States should help to modestly boost pricing of the strip near term.
- The front month now looks like this.
- Pemex Watch: PEMEX says 89 of its workers have died from Covid-19 now. We have heard reports that Brazil's Petrobras is suffering Covid casualties as well. We have seen no such reports from our firms (we've seen some reports of employees contracting Covid in the renewables space but no fatalities or long term impacts on their operations to date.
- Rigs Counts Watch:
Natural gas was flat for the prompt month last week closing at $1.85 but the 12 month managed a 2.5% gain to end at $2.44 after EIA reported a . Our near term outlook remains one of reattaining prompt $2.10+ natural gas and a strip well above $2.50. Look for our 2020 peak range on storage later this week. Please see The Week That Was for details. This morning gas is trading off 5% on ongoing demand worries (primarily LNG shipments).
Weather Watch:
- Last week: Gas Weighted Cooling Degree Days (CDDs) came in at 46 vs 31 normal and 24 in the prior week.
- This week's forecast: This week, CPC predicts CDDs will rise to 52 vs 37 normal.
The Week That Was
Stuff We Care About Today
The Five Things (changes in red)
- Civil Unrest + Coronavirus: All eyes watching for spikes as all states are in some stage of re-opening. Watch for clusters in 7 days from some really poor behavior on display in Middle America after the holiday weekend and on a lot of failure to socially distance over the last several days of protests/riots.
- Production Curtailments, Guidance, Rig & Spread Counts, and Tank Tops:
- Curtailments are now showing up in the weekly EIA reports - we've moved to consistently falling at least 0.1 mm bopd per week and are down 0.8 mm bopd from year ago levels and down 1.7 mm bopd from the peak reported by EIA's count 10 weeks ago,
- Guidance - 1Q20 saw the second and in some cases third round of guidance drops. We expect little to no further change for most names with the 2Q20 reports in July/August. We see names sticking to 1Q guidance or guidance suspensions with the 2Q20 reports.
- Rigs and spreads have fallen sharply over the last 10 weeks. As expected the pace of reductions has slowed drastically near term. Rigs are likely to ebb into 4Q unless prices move over $40. Spreads are seeing a modest rebound now.
- Oil in storage is at 62% of U.S. working capacity last week.
- Natural Gas Sentiment: is improving but as a reminder, expect this to be a slow, sawing type of improvement.
- Exports are temporarily ebbing. We see June and July as the slight dip in an otherwise increased export trajectory for 2020.
- At least 25 LNG cargo cancellations have been reported for June and we note LNG exports are starting to weaken (but only slightly so far). At least a dozen cargoes have been cancelled for July.
- We note 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.
- Non heating demand remains solid to near record.
- Summer temps are finally showing up and we expect this to drive strong gains in gas-fired generation in the very near term.
- Production is down:
- 7.6 Bcfgpd from the highs set in November 2019,
- Production is down 0.6 Bcfgpd from year ago levels (it's been years since we could say that),
- Production is falling almost weekly. There is the potential for another ~1 Bcfgpd further drop due solely to oil related shut ins.
- Supply (production plus net imports) is ranging from up 1 to down nearly 5 Bcfgpd vs the year ago level due to exports and easing production.
- The net short position is still elevated but has begun to reverse.
- The drop in 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. Biden has made some more anti frac noises of late. In Colorado we view it as a positive that Hickenlooper who is a fan of frac is in the lead now.
- Alternative Energy: Sentiment remains largely in good territory. We are seeing some delays due to installation and manufacturing related Covid impacts and some supply chain issues but all appears minor at this time.
Questions on the 5? These are our top of mind thoughts at present. We keep it short for the post but please feel free to ask in comments.
Other Stuff
- Look for additional cheat sheet updates for LBRT, PE, and WPX this week,
- Look for a new name piece in the renewables space late this week.
Odds & Ends
Analyst Watch:
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