01
Jan
Wrap – 2013
These points tie to the table that follows.
1) It was a good year by a number of equity measures. We generally look to be up as much as or more than than the S&P500 and the energy indexes. See point 1 in the table below but know that the calendar and our performance really don't coincide, meaning we don't do things to maximize any one time period's performance. We're not market or really sector timers and had we "gone to cash" in October during the 3Q13 momentum group fade, something we just don't do, we would have been up 60 to 70% on the year instead of only 35 to 40%. Valuations are not excessive, growth in our names continues to abound, and we are generally pleased with how the year played out and more importantly how our stories (some 30 of them held now) continue to play out.
2) Commodities mostly did as expected. Oil was within a buck of our end of 2012 estimate for 2013. Natural gas was within a dime as well. Again, pretty pleased with that. Please see the Tuesday, December 24th post here (subscriber only) for our 2014 forecast for oil and the Monday, December 30th post here (subscriber only) for our 2014 forecast for natural gas. Coal did nothing on the year which normally would be surprising given the move in natural gas and as such it was able to steal back generation share lost in 2012 ... but coal's pricing issues lie in the EPA and oversupply (more modest now but still an issue).
3) Rig growth also pretty much as expected. Oil rig count growth flattened due to efficiencies. Natural gas rigs held onto rock bottom levels due to high oil prices relative to low natural gas prices and also due to efficiencies of both drilling and completions in the more economic natural gas basins.
4) Non commercial (speculator) shorts wavered in their beliefs. This one almost is surprising given the five years we've been waiting for the speculators to fold on their massive net short position in natural gas futures built during 2008 and 2009 and maintained with steady resolve since then. Much of this weather and it's recent impact on storage. But some is also the slowing of Lower 48 production growth, the record low level of net imports, and growth in demand (yes, it's at record levels too). See our last natural gas macro update here for details (free to public). Also note the oil shorts have not yet gotten busy building a big position despite all the calls of "glut" made over the last few months due to 25 year high U.S. crude production.
5) Oil inventories not at glut levels. Crude, gasoline, and distillates all in line with year ago levels despite the 1 mm bopd increase in YoY production. We do a little slide show here each Thursday (here's a free look at that) and as such we've been tracking how imports have largely fallen off to compensate for the rise in production while refiners have stepped up utilization to consume the excess crude and then export those products (now at record export levels). The 2014 oil piece noted above walks through how we see this playing out in the new year.
6) Natural gas inventories .... fell out of the danger zone. Again, this is partially fortuitous weather and a deceleration in net supply (production plus net imports) but it's also record Industrial and combined Residential and Commercial demand along with a gas-fired electrical sector that in 2013 didn't have a record year but instead had it's second best year (it would have been another record had cheap coal prices not factored into the mix).
7) Ah, the fringe of our coverage really outperformed in 2013. We only loosely cover the dry bulks (due to our interest in coal primarily) and solar names (due to our logo I guess) and we simply sat on the sidelines this year and missed them. My bad. I'm not apologizing for this year but we took several medium depth dives into due diligence over the last several months and came away with the idea that a turn in the fundamentals has started (if you go look at the long term charts in those sectors it has been a tale of woe). Anyway, we'll be taking another look in 2014 and my plant one name from each of those groups in the ZLT.
Lastly, from the bottom of the Z4 Research team's hydrocarbon bearing hearts we say thank you to our subscribers, company guys we talk with, company officers and workers who do their best to deliver promised guidance each and every day, and other friends who help guide our thoughts and work to tirelessly answer our technical questions (I'm not an engineer and I won't play one on the internet) for making 2013 a standout year. We wish you all the best in 2014. Be safe and be prosperous, Z.
Z—you say the oil shorts haven't yet built their positions. Are you anticipating further downward pressure in Jan and Feb due to this?
January 1st, 2014 at 8:18 pmCNBC reporting something called Pipeline Safety Administration (?) PHSMA …. warning Bakken Oil is / may be more combustible ….. WTH ?
Oh, and Happy New Year Z & everyone else ….
And where is everyone today ??
January 2nd, 2014 at 1:24 pm