Monday Morning – Covid-19 Fear Rises, 4Q19 Earnings Peak



Market Sentiment Watch: Sentiment turns more fearful as markets eye Italy, Iran, and South Korea outbreaks. In today's post please find The Week That Was, The Five Things, a subscriber mailbag question, and some other odds and ends. In case you missed The Wrap please click here.

Ecodata Watch:

  • We get the Chicago Fed at 8:30 am EST (no forecast, last read was -0.35)

The Week Ahead: 

  • Tuesday - Case Shiller, FHFA home price index, consumer confidence,
  • Wednesday - New home sales, EIA oil inventory report,
  • Thursday - Jobless claims, GDP, durable goods, core capital goods, EIA natural gas inventory report
  • Friday - Advance trade in goods, personal income, consumer spending, core inflation, Chicago PMI, consumer sentiment. EIA 914 data.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today – The Five Things, Subscriber Mailbag
  5. Odds & Ends


Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades: None
  • ​The Blotter is updated.

Commodity Watch:

Crude oil rose 3.3% to close at $53.38 last week on a second week of bounce withe help of a better looking EIA weekly (see comments below) and thoughts that Russia will eventually come around to OPEC+'s thinking but not before the March meeting.  Brent closed up 3.8% on the week while the OPEC basket rose 5.5%. Please see The Week That Was for more details. This morning crude is trading down $2.

  • Russia Watch: Time for Russia to step up and be an OPEC+ partner.

Natural gas actually rose last week. Prompt month gas was up 3.7% at $1.905 on the week even venturing over $2 (briefly) for the first time since January. Two cargoes meant for Spain were rejected which took the wind out of gas' sails late in the week but we continue to expect a sub $2 Tcf trough and a trajectory for prices that is similar to that since in 2016 as more producers do the right thing by slowing their programs while non heating related demand continues to improve.  This morning gas is trading off 6 cents

  • India Watch:  Prices likely to be cut by 25% in India in April moving them in line with international pricing.

Weather Watch:

  • Last week: Near normal for second week.  Gas Weighted Heating Degree Days (HDDs) came in at 190 vs 192 normal and 200 (closest week to normal this year; normal would have been 203) in the prior week.
  • This week's forecast:  Not available at post time.

The Week That Was

Stuff We Care About Today

The Five Things:  (changes in red)

  1. 2020 Guidance: On average, flat to slightly up volumes, down capex. This has only been reinforced by the commodity price volatility of the last few weeks on both the oil and natural gas fronts.  Look for upstream names to slowly begin releasing their 2020 outlooks (January to February).  Capex is likely to be down modestly across the board (down less for oily names, down more for gassy names). Service names are likely to guide one quarter at a time (SLB did on Friday) with 1Q set to see a modest bounce relative to 3Q and 4Q19 levels (SLB said as much).  We plan to keep a running list of capex and volume guidance with the first list out very soon (names like COG have already put brackets on the new year, others are likely to wait for more confirmation on commodity prices and release guidance as late as the 4Q reports).  A majority of our names will look to generate free cash flow at $50+ in 2020 (some lower) and some gassy names will look to be cash neutral to slightly cash flow positive at a roughly $2.50 or $2.60 strip. COG should be cash neutral just under $2.25.  Expect upstream growth to take a backseat again in 2020 with FCF optimization (mix of volumes, price, cost vs capex) at forefront. While 2020 isn't official yet for most names the determination to be better than cash neutral is majority view and deemed critical by many.
  2. Coronavirus:  Fear of lower demand has likely taken about $10 out of global oil prices at this point. China infection rates appear to have slowed due to drastic containment measures. South Korea and a few other nations (of note, Italy, Iran) are seeing increased infected counts.  OPEC is likely to make a decision on proposed further cuts at the OPEC+ meeting in March after Russia stalled on recommendations by the JTC to further curtail group output by 0.6 mm bopd in 2Q20 and to extend the current 2.1 mm bopd in curtailments through year end 2020. There is increasing concern as we approach the end of February that the virus is more transmissable than expected.
  3. U.S. Production Directionality:  Pace of Lower 48 production growth is retreating - after a brief, expected bounce in rig counts YTD, counts are expected to trend flat to down in the rest of 1H20 while frac spreads over 30% off peak  We see EIA as missing the turn in production now, although, the latest EIA Drilling Productivity Report clearly anticipates rapid unconventional growth deceleration even as the DUC count starts to really drop.  We expect further downward revisions to the STEO forecast, particularly for oil growth, in early 2020 (though last week they did reverse course, moving their estimate higher due to prices (if not the reality of spreads and rigs).
  4. Natural Gas sentiment - remains in poor territory driven by mild winter weather.
    1. Exports hit almost weekly new highs
    2. Non heating demand remains solid to near record
    3. Production is over 2 Bcfgpd off record highs set in November 2019.
    4. The net short position is near record high territory
    5. We expect a storage trough likely between 1.8 and 2.0 Tcf at which point electricity generation and rising exports will take center stage.
    6. There is fear that China will impact global LNG markets via force majeure (we noted two cargoes were rejected recently from Spain).  No LNG is shipping to China from the U.S. at this time and operators are rejecting the FM proclamation at this time.
  5. 2020 Presidential Candidates: Sanders increased his lead with a bigger than expected win in Nevada.  In January he introduced a frac ban bill in the Senate. We reviewed the plan and noted there is no transition involved.  We expect a push by candidates to more fully embrace renewables and EVs and we continue to watch the energy rhetoric and plans which still range from the extreme (frac bans, revamp of SEC reporting to reflect climate change liability (mostly Warren) to measured (a push for further improvement of ESG - our mid and larger names are putting out stronger ESG reports now).  Frac bans are generally thought to be only applicable on federal lands (though Sander's plan says all land) which are generally western U.S. states (biggest hit to growth would be New Mexico portion of the Delaware).  The political climate in CA continues to worsen for producers. CO appears to showing some signs of less tension in the wake of recent clarifications by the state O&G agency (next worry item comes mid 2020 when proposals turn into action plans).   We currently hold >30% of the portfolio in Wind (3 names now), Solar, and fuel cells and we plan to add more exposure.
  6. Bonus Thing:  Renewables - we are over 30% renewables weighted now. We are interested in names with advantaged positions and products and have taken on those names that also have strong balance sheets.  The ZLT has never been this highly exposed to non upstream names. Please see the ZEB Positions page at upper left for our names.

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

Subscriber Mailbag Watch:

Question: "When coronavirus gets here in more force, how would you expect it to affect something like NG prices? Would demand be crippled? Trying to mentally wrap my mind around that."

Z4 Comments:

  • Totally fair question given the concern over oil.
  • However, given what natural gas is used for in the States we would not expect any great direct demand impact. Exports could be slowed due to the LNG glut (so far we've seen no impact on exports).
  • Natural gas is simply not a transportation fuel. It's well under 1% of consumption for transportation in the States.
  • Demand is highly levered to electricity generation. Seasonally, generation will increasing in the next few months and we don't see a potential outbreak in the States impacting electricity demand unless we see widespread facility closures.  Normally flu season results in frequent short term school closures which are undetectable in the electricity data.
  • Industrial demand could take a hit but the uses are steel, glass, concrete, food prep, and other as well as some district heating, and are widely diversified across the geography of the U.S. To really dent that we'd have to have a wide spread factory shut down and that would signal a far worse concern for markets than for natural gas.
  • Residential and commercial demand would likely be less affected (again given people staying at home burn more, not less gas, even in summer for water and cooking).  Commercial could take a hit but unless it moves beyond very localized areas we doubt it would be notable in the numbers.
  • But again, what you don't see with natural gas that you do with oil is the affects of restricted travel.


Other Stuff

Odds & Ends

Analyst Watch:

  • MGY - Susquehanna trims target from $16 to $14.

79 Responses to “Monday Morning – Covid-19 Fear Rises, 4Q19 Earnings Peak”

  1. 1
    zman Says:

    DJIA fut down 700 early.

    WTI down 3.5%
    Brent down 3.65%
    NG down 3.1%

  2. 2
    zman Says:



  3. 3
    zman Says:

    Buffet earlier – U.S. economy strong, investors should welcome selloff as chance to buy lower.

  4. 4
    zman Says:

    FSLR (unowned) – watching technical level at $49 for chart break lower and potential long term add opportunity.

  5. 5
    zman Says:

    NG down 3.1% early to $1.86


  6. 6
    zman Says:

    Border closings announced vs Iran, Italy.

  7. 7
    zman Says:

    10 minutes before equity open

    DJIA fut down 880 (3%)
    S&P fut down 100 (3%)
    Nasdaq fut down 318 (3.4%)

    WTI down 2.60 at 50.81
    Brent down 2.70 at 55.80

    NG down 0.047 at 1.858

  8. 8
    zman Says:

    Seeing some panic trades, pre market, done outside of bid/ask, like TPIC at $21, down 20%, with the bid at $24. That’s silly.

  9. 9
    zman Says:

    Calm down.

  10. 10
    zman Says:

    ZLT opened down 5%.

  11. 11
    zman Says:

    TPIC opens down a buck, or $4 higher than that pre market trade. Sloppy.

  12. 12
    zman Says:

    Here, prepping, mostly for Thursday. Shout if you need something, eye on a few things but sitting on hands awhile longer.

  13. 13
    zman Says:

    Analyst Watch

    COG – Scotia trims target from $23 to $20

  14. 14
    zman Says:

    Cabot off a whopping 8 cents today.

  15. 15
    zman Says:



  16. 16
    zman Says:




  17. 17
    brodway Says:

    Piper Sandler analyst Kashy Harrison maintains Parsley Energy (NYSE:PE) with a Overweight and raises the price target from $23 to $24 from $23 to $24

    MKM Partners analyst John Gerdes maintains Parsley Energy (NYSE:PE) with a Buy and lowers the price target from $25 to $24

  18. 18
    zman Says:

    re 17 – thanks. Highly hedged with strong differentials.

  19. 19
    tomdavis12 Says:

    TPIC attending 3 energy conferences in March. RJames, MS & Roth

  20. 20
    zman Says:

    re 19 – yep, and reporting later this week.

    As a reminder, there is a good chance they pull estimates in for 2020 when they report this week. At the investor day on Feb 7 they were careful to note that 2020 estimates did not take prolonged delays due to Covid-19 into account. Would expect them to move numbers modestly lower when they do report.

  21. 21
    tomdavis12 Says:

    Will attend IPAA in NYC in April. Expecting disappointing turnout. PE -8%

  22. 22
    zman Says:

    re 21 – yeah, they’re conferences have been poorly attended for awhile now.

    COG green now, good volume for time of day, a lot of shorts were trying to bang on it Friday, lotta lies.

  23. 23
    zman Says:

    Watching PLUG, down 9% now, for another add, a bit early since our initial one and it ran hard after our initial buy.

  24. 24
    zman Says:

    Hearing 8 day surface contact survival time for the virus. That’s extremely long.

    One has to wonder how long before we hear about someone getting it via the mail.

  25. 25
    zman Says:



  26. 26
    zman Says:

    We may have a piece out on TPIC the day before they report.

  27. 27
    zman Says:

    2 hours into the trading day. COG only green on screen (up a penny, has been off and on back over $15).

  28. 28
    zman Says:

    GW HDD’s forecast for this week drops to 163 vs 180 normal.

  29. 29
    zman Says:

    re 27 – rest of gassy space names down from 3 to 7%.

  30. 30
    crysball Says:

    Iran has a new Export….COVID-19

    A thorogh read of the BNO COVID-19 tracking notes reveals the initial cases is Afghanistan, Lebanon, Bahrain, UAE, Iraq & Kuwait all came from Iran.

    The Iranian MP for QOM states the Iranian Government is vastly undeeprporting the COVID-19, where he says there were 50 deaths as of mid-las week.

    Managing a health crisis seem to be a real problem in TOTALITARIAN societiieas where the orgaizational culture is to delay & deny bad news and then the sycophant bureacray reacts slowly. …………meanwhile the fast paced virus outdistances them……..and escapes to other cities, and outside the country.

  31. 31
    zman Says:

    re 30 – thanks for the color

  32. 32
    zman Says:

    DJIA off 1,000

  33. 33
    zman Says:

    We are off less than we were at the open, no sense of panic in the names.

  34. 34
    zman Says:

    OT – grabbing lunch, back in a bit.

  35. 35
    crysball Says:

    The numbers and the pattern recognition of its spread do not lie…………… IMHO COVID-19 is rapidly moving to ‘UNCONTAINED’ and we need to consider the next stage, ‘MITIGATION’ and how this will impact the world economy and demand/supply for energy.

    While ‘fear’ is certainly evident:
    ~look at cruise line bookings,
    ~ new car sales in China (pointed out earlier on the blog),
    It becomes imperative to understand how the supply chain ‘KINKS’ willl be manifested, as the interdepenncies of the various national economies & companies on China in particluar play out.

    As an exmple, a single case of COVID-19 at a Samsung Plant in China………..shut the enitre plant………….how will this ripple through their supply chian in the ‘JUST IN TIME’ manufacturing world we live?

  36. 36
    zman Says:

    re 35 – we’ve covered it for gas as above. OPEC and IEA have covered it for now for oil though it may temporarily be worse. Not sure what to really add on that front given that we don’t know duration and would just be guessing. China is a large piece of the annual liquids demand growth each year and as this moves forward that demand growth will ebb lower in forecasts issued by EIA, OPEC, IEA each month. The flipside is that OPEC+ is more likely to further curtail supply at the March meeting.

  37. 37
    zman Says:

    re 36 – anyone with less resources on the case than the JTC is full of salesmanship.

  38. 38
    james T Says:

    What are people doing ?

  39. 39
    zman Says:

    re 38 – I am just watching things for now. We are flat with where we opened. A few charts are suddenly broken but that’s fine, oil is not, have seen a few small volume attempts at bottom fishing. The last thing I do at times like this is panic sell. Like that chap who sold TPIC $4 lower than here pre market. I mean, wow dude. COG is seeing buyers all day, flat despite the 1,000 sale. PE was down 8% earlier as Tom noted and with the markets lower is off 7%, again, no sense of panic. MGY has a busted chart now, not ready to add yet but considered it, just sitting vs market backdrop. Broad market has been spiraling higher and the word of the week has shifted from sanguine to complacent so now people suddenly care and are taking some $ off the table. China is re-doubling containment efforts but will also be rolling out fiscal stimulus measures.

  40. 40
    nrgyman Says:

    re 38: Bought GDX last week and added more. Bought another tranche of FSLR this morning. Making a list of buys to jump on when the time is right.

  41. 41
    zman Says:

    Adding to 39

    Watching PLUG for a lower add

    Good to see JKS and TPIC largely ignoring, fighting off dips. Again, TPIC likely warns later this week, should be known.

  42. 42
    zman Says:

    Adding to 41

    Writing new pieces on BWEN and TPIC

  43. 43
    zman Says:

    Adding to 42 – what else am I doing, noting MR ability to fight back as well, may be helped by NGL’s starting to pick up last week (first time in a long time) but probably more of a sense that it is just well overdone.

  44. 44
    zman Says:

    BWEN will be out after the 4Q call.

  45. 45
    crysball Says:

    Impact analysis of COVID-19 IMHO is a matter of Pattern Recognition not resources….

    History points to the 1918 Spanish Flu
    Pandidemic and how it spread and impactted the world…… a time .when information and people moved at a much slower pace….and while the mortality rate of COVID-19 appears to be much lower………….world airlines and world trade are enabling COVID-19’s spread at an unparalleled pace.

    Spanish Flu moved in infectious waves (albeit slow waves) around the world….will this wave pattern be repeated………but at an accelerated pace by World Airlines and World Trade?

    Mathematical Epeidemiologists atttempting to model COVID-19 seem to favor math models based on Network Analaysis, with Wuhan China as the base node……….followed by South Korea and Iran as Secondary nodes…they can then propogate from there varying speed and other factors.

  46. 46
    zman Says:

    re 45 – most of the stuff I read says 60% will get it, mortality rate < 2%.

  47. 47
    Baylor Says:

    Re 38 I sold half my 401k last week. Thought of taking another 1/4 off Friday. Haven’t put in any closing out trades today as expecting sawing action as people think people Re nuts but once it gets here and someone knows someone that does from it, I expect thenlanoc will set in.

    Just a question of when

  48. 48
    Baylor Says:

    And of course, I could be wrong

  49. 49
    james T Says:

    re38 I think gold going higher as well. U.S. is not testing most people and CDC screening protocol at the moment is almost worthless. Very few quarantined.

  50. 50
    zman Says:

    re 47/48 – and you could be right. I think any news of someone getting it by mail will really thump the indexes.

  51. 51
    zman Says:

    re 49 – from what I read, and that’s just interviews with various epidemiologists containment seems unlikely. Impact may be (just may be) less than the regular flu however. Apparently extremely hard on the > 80 group and smokers.

  52. 52
    zman Says:

    Watch things like COP for signals on bottom fishing.

  53. 53
    zman Says:

    Not publishing my BWEN pre report pre the 4Q release. My sense is they have some thunder to speak to on Thursday. Much of what’s in it has been posted before on the site and I don’t ever want to be sideways with a management team.

  54. 54
    reefguy Says:

    CPE dowm 13%

  55. 55
    zman Says:

    $1 rally in oil off the lows last hour as we approach into the nymex close.


    Nothing at that point in time headline worthy other than this non headline worthy headline.

    “Iranian OilMin: Price Fluctuations In Oil Market Are Due To Coronavirus” – RTRS

  56. 56
    nrgyman Says:

    Crude getting some buying interest, giving support to the equity names.

  57. 57
    zman Says:

    re 54 – reports later this week, no one cares about the little guys at the moment but plan to review the quarter. Wish they’ve find a less crowed day, about a dozen reporting for Thursday, easy for news to get lost in that.

  58. 58
    zman Says:

    re 56 – yeah, see 55, ha.

  59. 59
    zman Says:

    CDC confirms 53 coronavirus cases, including repatriated citizens.

  60. 60
    zman Says:

    COG and BE green now, others inching off lows.

  61. 61
    Baylor Says:

    What’s killing people when they get it? Pneumonia? Kings floodin w water? Something else?

  62. 62
    zman Says:

    re 61 – respiratory failure. Better care can ameliorate this. Lower pressure ventilators, rotation of the patient off back, can help.

  63. 63
    nrgyman Says:

    Re 59: The rapid spread of this SARS-type virus begs the question: how did it get started in the first place? Need to know that to help prevent future epidemics. Theories about various animals have been looked at and discarded. Global experts still do not know for sure, but this possible explanation is disturbing:


    If this is true, while maddening, it could be more controllable to prevent future outbreaks.

  64. 64
    zman Says:

    re 63 thoughts

    • google “gain of function research”
    • zerohedge was banned from twitter for posting on this several weeks ago.
  65. 65
    zman Says:

    We will have OII and CDEV (unowned) in tomorrow’s post.

  66. 66
    zman Says:

    and also comments on LNG (the company).

  67. 67
    zman Says:

    Looks like they want to close the DJIA down > 1,000.

  68. 68
    zman Says:

    Ending down less than 5% (where we opened),
    with a few names green or close to it.

    Beerthirty, back in a bit.

  69. 69
    zman Says:

    CDEV on the tape with a beat on volumes, announcing in line volume guidance on a bigger than expected drop in capex. Also a water sale that will fund the 2020 spending gap (their words), also Papa retiring. No interest in a long by me at this time.

  70. 70
    zman Says:

    OII on the tape with a beat and reiterated of 2020 guidance, notes in the morning post. 2020 to be a much bigger free cash year than 2019.

  71. 71
    zman Says:

    Fed of a mixed mind as to need for rate cut vs virus.

  72. 72
    zman Says:

    Moderna Ships MRNA Vaccine Against Novel Coronavirus (MRNA-1273) For Phase 1 Study

    — Released First Batch Of MRNA-1273, Company’s Vaccine Against Novel COVID-19, For Human Use

  73. 73
    zman Says:

    The Coronavirus is very much under control in the USA. We are in contact with everyone and all relevant countries. CDC & World Health have been working hard and very smart. Stock Market starting to look very good to me! ~ Donald J Trump tweet.

  74. 74
    zman Says:


  75. 75
    zman Says:

    OT – back in about 2 hours.

  76. 76
    zman Says:

    Multiple LPI directors taking shares in lieu of cash.

  77. 77
    Baylor Says:

    ET back into the mid $11s

    May begin building a position there again

  78. 78
    Baylor Says:

    XOM at 16 year lows. Notnkne ive ever owner but what’s crushing it? It’s yoelding > 5%

    It didn’t get this low in any of the carnage of the last 6-7 years

    Dead money? Generational

  79. 79
    Baylor Says:

    Not one I’ve ever owned but what’s crushing it?

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