24
Feb
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:
- Holdings Watch
- Commodity Watch
- The Week That Was
- Stuff We Care About Today – The Five Things, Subscriber Mailbag
- 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)
- 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.
- 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.
- 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).
- Natural Gas sentiment - remains in poor territory driven by mild winter weather.
- Exports hit almost weekly new highs
- Non heating demand remains solid to near record
- Production is over 2 Bcfgpd off record highs set in November 2019.
- The net short position is near record high territory
- 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.
- 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.
- 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.
- 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
- The 4Q19 calendar,
- Coronavirus tracker. (we have added to links at right as it appears likely to be with us for some time)
Odds & Ends
Analyst Watch:
- MGY - Susquehanna trims target from $16 to $14.
DJIA fut down 700 early.
WTI down 3.5%
February 24th, 2020 at 5:09 amBrent down 3.65%
NG down 3.1%
CHINA CENTRAL BANK WILL LAUNCH NEW POLICIES IN APPROPRIATE TIME TO COUNTER THE IMPACT OF CORONAVIRUS OUTBREAK
CHINA CENTRAL BANK SAYS TO REDUCE INTEREST RATES ON LOANS TO SMALL AND MICRO COMPANIES
February 24th, 2020 at 7:02 amBuffet earlier – U.S. economy strong, investors should welcome selloff as chance to buy lower.
February 24th, 2020 at 7:34 amFSLR (unowned) – watching technical level at $49 for chart break lower and potential long term add opportunity.
February 24th, 2020 at 7:36 amNG down 3.1% early to $1.86
https://www.investing.com/commodities/natural-gas
February 24th, 2020 at 7:37 amBorder closings announced vs Iran, Italy.
February 24th, 2020 at 7:38 am10 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
February 24th, 2020 at 9:20 amSeeing some panic trades, pre market, done outside of bid/ask, like TPIC at $21, down 20%, with the bid at $24. That’s silly.
February 24th, 2020 at 9:29 amCalm down.
February 24th, 2020 at 9:29 amZLT opened down 5%.
February 24th, 2020 at 9:36 amTPIC opens down a buck, or $4 higher than that pre market trade. Sloppy.
February 24th, 2020 at 9:37 amHere, prepping, mostly for Thursday. Shout if you need something, eye on a few things but sitting on hands awhile longer.
February 24th, 2020 at 9:44 amAnalyst Watch
COG – Scotia trims target from $23 to $20
February 24th, 2020 at 9:54 amCabot off a whopping 8 cents today.
February 24th, 2020 at 9:55 amS&P 500 TRADES BELOW ITS 50-DAY MOVING AVERAGE FOR FIRST TIME SINCE OCT 10, 2019
DOW FALLS BELOW 50-DAY MOVING AVERAGE FOR THE FIRST TIME SINCE FEB 3
February 24th, 2020 at 9:56 amUAE ENERGY MIN: VIRUS IMPACT IS MINIMAL AND TEMPEROARY ON OIL MARKETS
UAE ENERGY MIN: SEES HEALTHY OIL DEMAND IN SECOND HALF
UAE ENERGY MIN: ASIA CRUDE LOADINGS DECLINING
February 24th, 2020 at 9:57 amPiper 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
February 24th, 2020 at 9:59 amre 17 – thanks. Highly hedged with strong differentials.
February 24th, 2020 at 10:01 amTPIC attending 3 energy conferences in March. RJames, MS & Roth
February 24th, 2020 at 10:14 amre 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.
February 24th, 2020 at 10:18 amWill attend IPAA in NYC in April. Expecting disappointing turnout. PE -8%
February 24th, 2020 at 10:20 amre 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.
February 24th, 2020 at 10:22 amWatching PLUG, down 9% now, for another add, a bit early since our initial one and it ran hard after our initial buy.
February 24th, 2020 at 10:23 amHearing 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.
February 24th, 2020 at 10:27 amWHITE HOUSE PREPARING TO REQUEST EMERGENCY SPENDING PACKAGE FROM CONGRESS TO FINANCE CORONAVIRUS RESPONSE
WHITE HOUSE COULD SEEK CLOSE TO $1B FOR CORONAVIRUS RESPONSE, REQUEST MAY BE SENT TO CONGRESS IN A FEW DAYS -WASHINGTON POST
February 24th, 2020 at 10:28 amWe may have a piece out on TPIC the day before they report.
February 24th, 2020 at 10:47 am2 hours into the trading day. COG only green on screen (up a penny, has been off and on back over $15).
February 24th, 2020 at 11:33 amGW HDD’s forecast for this week drops to 163 vs 180 normal.
February 24th, 2020 at 11:36 amre 27 – rest of gassy space names down from 3 to 7%.
February 24th, 2020 at 11:43 amIran 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.
February 24th, 2020 at 11:50 amre 30 – thanks for the color
February 24th, 2020 at 12:00 pmDJIA off 1,000
February 24th, 2020 at 12:33 pmWe are off less than we were at the open, no sense of panic in the names.
February 24th, 2020 at 12:44 pmOT – grabbing lunch, back in a bit.
February 24th, 2020 at 12:55 pmThe 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?
February 24th, 2020 at 12:58 pmre 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.
February 24th, 2020 at 1:01 pmre 36 – anyone with less resources on the case than the JTC is full of salesmanship.
February 24th, 2020 at 1:03 pmWhat are people doing ?
February 24th, 2020 at 1:03 pmre 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.
February 24th, 2020 at 1:11 pmre 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.
February 24th, 2020 at 1:11 pmAdding 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.
February 24th, 2020 at 1:16 pmAdding to 41
Writing new pieces on BWEN and TPIC
February 24th, 2020 at 1:16 pmAdding 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.
February 24th, 2020 at 1:18 pmBWEN will be out after the 4Q call.
February 24th, 2020 at 1:43 pmImpact 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.
February 24th, 2020 at 1:47 pmre 45 – most of the stuff I read says 60% will get it, mortality rate < 2%.
February 24th, 2020 at 1:54 pmRe 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
February 24th, 2020 at 1:55 pmAnd of course, I could be wrong
February 24th, 2020 at 1:55 pmre38 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.
February 24th, 2020 at 1:57 pmre 47/48 – and you could be right. I think any news of someone getting it by mail will really thump the indexes.
February 24th, 2020 at 1:57 pmre 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.
February 24th, 2020 at 2:00 pmWatch things like COP for signals on bottom fishing.
February 24th, 2020 at 2:00 pmNot 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.
February 24th, 2020 at 2:10 pmCPE dowm 13%
February 24th, 2020 at 2:24 pm$1 rally in oil off the lows last hour as we approach into the nymex close.
https://www.dailyfx.com/crude-oil
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
February 24th, 2020 at 2:29 pmCrude getting some buying interest, giving support to the equity names.
February 24th, 2020 at 2:30 pmre 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.
February 24th, 2020 at 2:31 pmre 56 – yeah, see 55, ha.
February 24th, 2020 at 2:31 pmCDC confirms 53 coronavirus cases, including repatriated citizens.
February 24th, 2020 at 2:50 pmCOG and BE green now, others inching off lows.
February 24th, 2020 at 3:08 pmWhat’s killing people when they get it? Pneumonia? Kings floodin w water? Something else?
February 24th, 2020 at 3:09 pmre 61 – respiratory failure. Better care can ameliorate this. Lower pressure ventilators, rotation of the patient off back, can help.
February 24th, 2020 at 3:12 pmRe 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:
https://www.dailywire.com/news/report-suggests-that-details-point-to-coronavirus-coming-from-chinese-lab
If this is true, while maddening, it could be more controllable to prevent future outbreaks.
February 24th, 2020 at 3:14 pmre 63 thoughts
- google “gain of function research”
- zerohedge was banned from twitter for posting on this several weeks ago.
February 24th, 2020 at 3:35 pmWe will have OII and CDEV (unowned) in tomorrow’s post.
February 24th, 2020 at 3:41 pmand also comments on LNG (the company).
February 24th, 2020 at 3:55 pmLooks like they want to close the DJIA down > 1,000.
February 24th, 2020 at 3:56 pmEnding down less than 5% (where we opened),
with a few names green or close to it.
Beerthirty, back in a bit.
February 24th, 2020 at 3:59 pmCDEV 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.
February 24th, 2020 at 4:43 pmOII 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.
February 24th, 2020 at 5:23 pmFed of a mixed mind as to need for rate cut vs virus.
February 24th, 2020 at 6:16 pmModerna 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
February 24th, 2020 at 6:20 pmThe 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.
February 24th, 2020 at 6:20 pmSAUDI ARAMCO CEO SAYS HE IS CONFIDENT OIL DEMAND WILL IMPROVE IN SECOND HALF OF YEAR, PARTICULARLY IN CHINA
February 24th, 2020 at 6:21 pmOT – back in about 2 hours.
February 24th, 2020 at 6:44 pmMultiple LPI directors taking shares in lieu of cash.
February 24th, 2020 at 9:04 pmET back into the mid $11s
May begin building a position there again
February 24th, 2020 at 10:55 pmXOM 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
February 24th, 2020 at 11:23 pmOpportunity?
Not one I’ve ever owned but what’s crushing it?
February 24th, 2020 at 11:23 pm