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Market Sentiment Watch:

• Economic data picks up this week, 
• Energy news flow should pick up over the next couple of weeks as should mark to market season for 2Q21, 2H21, and 2022 (for both oily and gassy upstream names). Numbers are going to be heading higher.

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.

 

Ecodata Watch:

• No economic data release scheduled. 
• We get the EIA drilling productivity report around 12 pm EST.

The Week Ahead: 

• Tuesday - NFIB small business, CPI, federal budget, 
• Wednesday - PPI, Beige book,
• Thursday - Jobless claims, import price index, Empire State, Philly Fed, industrial production, capacity utilization,
  
• Friday - Retail sales, consumer sentiment, business inventories. 

In Today’s Post:

1. Holdings Watch
2. Commodity Watch
3. The Week That Was
4. Stuff We Care About Today – The Five Things, 2Q21 Calendar
5. Odds & Ends

Click the link directly below this to ...

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Holdings Watch:

ZLT (Zman Long Term portfolio)

• Last Week’s Trades:
  • We added to COP on group weakness,
  • Added a starter position in MCF after much post merger announcement weakness and with a new deal announcement, 
  • And added to VWDRY on weakness after a quarter of strong new order flow and a massive offshore order, first one for their new biggest in class turbine, on Friday. 
• ​The Blotter is updated.

Commodity Watch:

Crude oil eased 0.8% to close at $74.56 last week with the 12 month strip down 1% ending at $70.00.  Oil has been ahead of itself and while EIA released yet another bullish report highlighted by big oil and gasoline stock draws and an all time record week for gasoline demand, OPEC's inability to reach a deal in the wake of the busted meeting from the week prior unsettled pricing most of the week. We see this as no big deal and noted that while CFTC longs vs shorts remained high during the week the longs did ebb some and we'd like to see the ratio move lower still in coming weeks. A high long vs short ratio (above 6 and anything approaching a 10x) can lead to big swings in crude prices that scare equities. At present the ratio is at 8.8x, at the high for this year.   This morning crude is trading off about a buck.

• OPEC Watch: OPEC+ remains quiet.
• Not So Perma Frost Watch:  Section of AK pipeline permafrost defrosting and in need of stabilization. 

Natural gas eased 0.7% ending the week at $3.674 despite a much smaller than expected injection, moving off in sympathy with crude earlier in the week. The strip rose 0.6% and now sits at a lofty $3.47. We note the gas rig count moved back into triple digits for only the third since the start of the pandemic. We expect a healthy mark to market of 2022 estimates soon.   

• This week look for a larger injection (holiday plus weather),
• This morning gas is trading off a penny.

Weather Watch:

• Last week:  Cooling Degree Days (CDDs) came in at 76 vs 70 normal and 80 in the prior week.
• This week's forecast:  This week, CPC predicts CDDs will rise to 82 vs 73 normal.

​The Week That Was

Stuff We Care About Today

The FIVE Things  (Significant changes or re-highlights in RED); we will probably shorten this section again soon. 

1. Biden Admin: (we are likely to downgrade this section soon; apparently much less of a threat than many suspected; we have shortened several points here)
   1. Renewables. We have seen and continue to see Green/Renewable space names doing well under Biden - our sense is that after a post inauguration dip that green space names will begin to base and then carry higher. Group looks to be rounding higher now, most notably in Solar. We have increased our solar exposure and grid equipment exposure in recent weeks. 
   2. Iran Nuclear Deal - Uncertain If/When A Deal Will Be Struck - indirect talks continue
      1. It is still possible sanctions will come off Iranian oil barrels this year (maybe 3Q21, maybe not). We note the new president of Iran may make this take longer or even kill a new deal. He's a known bad guy and makes rash statements, likely more than the outgoing president.
      2. Iran is enriching uranium metal now. 
   3. The White House is now opening expressing it's wish that OPEC reduce prices. 
   4. Executive Orders ~  We have become less concerned about Biden Administration really impacting oil and gas companies. 
      1. 1. Paris Climate Accord re-entry.  Done. 
         2. We DID NOT see a federal lease frac or permit ban day one. We do see a 12 month study on health impacts relative to drill and frac setbacks.  
         3. A federal lands new permit suspension for 60 days. Done. We thought to see some news here in April but did not. In June a federal judge has ordered Biden Admin to get back to issuing permits. 
         4. Reserve liability component.  No news is good news for oil and gas names here. Very very quiet on this front. 
   5. Infrastructure - potential for a deal increased in June. Momentum slowed so far in July. Good for renewables segment, especially EVs and grid. 
2. Coronavirus:  Mixed bag.  
   1. U.S. is mostly open.  Parts of U.S. seeing higher numbers.
   2. Rest of world far less vaccinated. 
   3. Variants largely addressed by vaccines. More talk of boosters for fall 2021 soon. 
   4. 2Q21 conference call season will be interesting as supply chains show positive signs and some raw materials costs are already starting to come off spikes. 
   5. Expect very strong summer 2021 travel season.
3. Oil Production / Sentiment:
   1. 1. 1. U.S. Production - Production slowly edging higher now, likely at about 0.1 mm bopd per two month period.  
            
         2. Rigs - Recent increase was year end positioning for 2021 and it slowed as expected into 2Q20. The 2Q21 call season should again point to discipline but there are also likely to be some outlier managements who step up activity more than previously expected on the recent move in oil.
         3. Frac Spreads:  238 last week (new pandemic high).  Our play here has very much been LBRT and we also added PUMP.   We are likely to add NEX (unowned) as well. 
            1. LBRT thinks:
               1. 165 spreads needed to hold U.S. flat in 2021. That's just oil.
               2. and we need 25 to 30 more spreads to maintain natural gas production.
               3. additional 80 spreads to grow U.S. oil production by 1 mm bopd in 2021.
               4. Therefore, to MAINTAIN oil and gas production in 2021, at end of 2020 levels, we need 190 to 200 spreads (as an average for the year).
               5. we expect spreads to rise in 1H21 to handle DUC completions.
         4. STEO sees modest lower US oil production 2020 to 2021 with volumes rising during 2Q21.
         5. Storage levels:
            1. Crude stocks are ~ 7% below five year average.
            2. Gasoline stocks are below five year average.
            3. Distillate stocks are below five year now too.   
            4. Expect positive YoY comparisons on U.S. throughput near term with weak stocks and strong cracks where they are.
         6. Sentiment - Improved with vaccine approvals.  STRONG VACATION TRAVEL SEASON AT HAND ~ work related demand and further sentiment improvement. 
            1. Gasoline demand traction has been spotty and remains spotty.
         7. OPEC has been viewed as taking a MEASURED, CONSTRUCTIVE approach to early 2021. OPEC+ seems to have finally figured out how to play the new game of sell less, make more money. We expect the early July OPEC meeting failure to be resolved quickly (before August). 
4. Natural Gas Sentiment: SHOULDER SEASON OVER; MOVING ON TO RECORD SUMMER DEMAND.
   1. Supply is weak (but improving as U.S. production rises)
      1. LNG exports are holding near record high levels.
      2. Mexico exports holding near record high levels. Exports to Mexico set a new record twice in June.
      3. Imports from Canada will edge lower after shoulder.
      4. Production is above year ago levels, but still well off peak.
      5. Therefore, Net supply is down YoY and not set to improve (significantly) until later this year.
   2. All eyes should be focused on gas-fired generation relative to overall generation given prices near $3.00. We think $3.25 type pricing will dull potential record demand. We should know soon. 
   3. Shorts have grown increasingly confident again, poised for typical shoulder season weakness. The more to cover later.
   4. We continue to simply expect better sentiment from gassy upstream names than we saw in 2020. So far so good on this call. 
   5. Natural Gas Storage is in deficit to year ago and five year average levels now. 
   6. We have large positions in AR (4th in ZLT) and VEI (5th). We are re-growing a position 
   7. Expect more consolidation in the gassy space. We've see public gas for public gas. We've seen public gas for private gas.  We expect to see public oil for public gas some day soon (2H21 or 1H22). 
   8. NGL prices are just under 1 year plus highs... just very strong. Good for names like AR and SWN and unowned RRC.
      1. Propane prices inventories are very low. Propane and ethane pricing are counter-seasonally strong.
      2. Ethane recovery may slow U.S. production bounce.
      3. Good for our positions in AR, SWN, BCEI, and MGY.
5. Renewables & SPACs: 
   1. Sentiment is "guarded and ... starting to recover", an improvement from our recent thoughts of "weak" AND the stocks appear to be basing. Expect bottom fish action soon, already seeing this in solar and middle tier EV.
   2. Renewables are just under 50% of assets in the portfolio via 12 names.
      1. We want to add more grid exposure and recently added more STEM.
      2. We are working to balance our renewable holdings among Wind, Fuel Cells, Solar, EV, and Storage/Grid resiliency.   We are currently heavily skewed towards Wind but have recently been bolstering Solar (recent adds to ENPH and SHLS) .
   3. SPACs (the SPAC % in the portfolio is captured in the nearly 50% Renewables wedge noted above)
      1. Sentiment remains negative but we are seeing greater bifurcation in performance for those SPACs that brought more "real companies to market. Those with more near term revenue and the promised of positive EBITDA and built out manufacturing facilities. Those that could have successfully IPO'd.
      2. An example of this is STEM and the recent jump in the shares off the SPAC hate induced lows.
      3. A future example of this, we believe, will be PTRA.

2Q21 Energy Earnings Calendar - So Far

Odds & Ends

Analyst Watch:

• TBA in comments if we see any.