Monday Morning

Posted on by zman

.

.

Market Sentiment Watch:  Eyes should still be on China, not as much regarding debt this week, but instead power (or lack thereof) and a global supply chain this will further stress.  Interesting reading regarding pinched power supply in China due to low coal supplies and tightening emissions standards to start the week off (and another potentially supportive sign for U.S. LNG exports but inflationary for metals and supply chain bits).

Housekeeping Watch:

  • IF we are sending trade notifications to the wrong email address let us know at zman@zmansenergybrain.com or text us at our number on the contacts page. 
  • Helpful tip of the day:  If a chart or table doesn't fit entirely on your screen try clicking directly on it and when done hitting the back button your screen.

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:

  • We get durable goods at 8:30 am EST (no forecast, last read was -0.1%)

The Week Ahead: 

  • Tuesday - Case-Shiller home prices, consumer confidence, 
  • Wednesday - Pending home sales, EIA oil inventories, 
  • Thursday - Jobless claims, 2Q21 GDP revision, Chicago PMI, EIA natural gas storage, 
  • Friday - Disposable income, consumer spending, core inflation, ISM manufacturing PMI, construction spending, consumer sentiment.  

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today – The Five Things, VWDRY (US and Russia wins)
  5. Odds & Ends

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

Commodity Watch:

Crude oil rallied 3% to close at $73.98 last week with the strip closing back above $70 (at $71.91) and Brent holding over $75 (key psychological support) for a second week. Note that the Brent to WTI spread is now > $4 which should be export supportive. The price rally appeared to be more on an easing over China debt concerns and less about the EIA weekly last week which was fairly neutral to our eye.  This morning crude is trading up a buck.

  • OPEC Watch: The next OPEC+ meeting is next Monday. At present another 0.4 mm bopd de-curtailment move is expected. 
  • Demand Watch:  APPEC (Asia Pacific Petroleum Conference) see global demand eclipsing pre pandemic levels by early 2022, in line with recent forecasts by OPEC.
  • Gasoline Demand Watch:  Panic buying in Britain leaves up to 90% of pumps dry in some cities due to a shortage of truck delivery drivers.

Natural gas edged up 0.7% to end the week at $5.14 on an inline storage report and a stall in the recovery of natural gas production in the Gulf.

  • The 2022 and 2023 natural gas strips remain exceedingly strong, and were up again 2.7% and 4.0% to $4.52 and $4.21 respectively last week.
    • Street estimates as noted in The Week That Was below are far below these levels. Look for rising estimates in October.
  • LNG exports headed back north of 10 Bcfgpd. Export demand remains very strong. 
  • Look for a modestly larger build next week.
  • NGL prices remained near the high of the year.  
  • Interesting Reading from Vitol on global natural gas markets. 
  • This morning gas is trading up 20 + cents.

Weather Watch: Grudgingly cooling

  • Last week:  Cooling Degree Days (CDDs) came in at 36 vs 29 normal and 55 in the prior week.
  • This week's forecast:  This week, CPC predicts CDDs will hold at 36 vs 23 normal.

​The Week That Was

Stuff We Care About Today

The Five Things - (Significant changes or re-highlights in RED)

  1. Biden Admin: 
    1. Iran Nuclear Deal - Appears increasingly unlikely ... and ... Biden Admin said to be working on contingency plan as Iran presses forward with further JCPOA violations.
      1. Talks are not in progress.
      2. Iran has approached UN to see if they will run new deal talks.
      3. Iran says talks to resume "very soon"
      4. Iran continues to reject IAEA monitoring. Uranium enrichment beyond JCPOA limits continues.
    2. Oil & Gas - We have become less concerned about Biden Administration really impacting oil and gas companies.
      1. Permits restarted after pause.
      2. Lease sale plans are underway (though we note the offering is small and scattered in the US west). 
      3. Pipeline approvals remain a sticking point, especially in/out of Appalachia.  
    3. Infrastructure Bill - Passage would be good for renewables segment, especially EVs, charging, and grid.  Resolution of PTC would help wind sector.  Progress here remains variable day to day / week to week. 
  2. Coronavirus:  In Aggregate, Delta Numbers in the U.S. are NOT Good BUT WE NOTE AREAS HIT HARD EARLY BY DELTA APPEAR TO HAVE PEAKED AND REVERSED LOWER.   
    1. U.S. remains mostly open.
    2. Rest of world far less vaccinated.  Lockdowns appear less effective this year. Progress in getting more shots to rest of world is being made. 
    3. Variants largely addressed by vaccines.
    4. Supply chain comments from 2Q21 calls were a mixed bag - inflation, logistics, service travel remain challenging.
    5. Not hearing about major factory issues for renewables names.
    6. Global air traffic appears to be slowing improving.
  3. Oil Production / Sentiment:
      1. U.S. Production - Production edging higher now - expect about 0.1 mm bopd per 4 to 6 week period.  
      2. OPEC Production - increasing by 0.4 mm bopd per month beginning August 2021 forward.  We don't see much upside to OPEC's planned rate of "de-curtailment" due to Covid concerns.
      3. U.S. Rigs - The 2Q21 call season was a portrait of discipline ... although DUC replenishment for 2022 programs has begun.
      4. Frac Spreads:  257 last week - new pandemic period high so far (prior high last week at 252).  Our plays here are LBRT, PUMP, and NEX. Pricing traction is a work in progress, improving now but has been slower to resolve than we had expected.
        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.
      5. Oil Inventory Levels:
        1. Crude stocks are ~ 8.3% below five year average.
        2. Gasoline stocks are ~ 2.4% below five year average. Demand remains inconsistent. 
        3. Distillate stocks are ~ 14.0% below five year average.  In good shape (to be price supportive) before we head into the heating months.    
        4. Expect positive YoY comparisons on U.S. throughput near term with weak product stocks and strong cracks.
      6. Watching for some portion of Ida Gulf of Mexico outages to be lasting (months, not weeks).
  4. Natural Gas Sentiment:
      1. Production is very slowly rising
        1. Biggest increases coming from New Mexico and Louisiana; more muted growth from Appalachia.
      2. Supply is rising less quickly
        1. LNG exports are holding near record high levels.
          1. Expect a maintenance dip in September but Ida did not appear to do major damage to Cameron and operations there continued post storm.
        2. Mexico exports holding near record high levels. Exports to Mexico set a new record twice in Summer 2021.
        3. Imports from Canada may be less weak than expected given strong prices this fall.
        4. Net supply is down YoY and not set to improve (significantly) near term.
      3. Watching for higher price impacts on gas-fired generation.
      4. Short position remains huge. 
      5. We continue to simply expect better sentiment from gassy upstream names than we saw in 2020. 
      6. Natural Gas Storage is increasingly in deficit to year ago and five year average levels now. 
      7. We have large positions in AR and a medium sized position in SWN. 
      8. Expect more consolidation in the gassy space (VEI just done, more to come). 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).
      9. Watching for some portion of Ida Gulf of Mexico outages to be lasting (months, not weeks).   
      10. NGL prices remain very strong with the composite price roughly double year ago levels. Prices hit new highs last week. 
            1. Propane inventories are very low. Propane and ethane pricing are counter-seasonally strong.
            2. Ethane prices also hit a fresh 12 month high last week and ethane recovery may slow U.S. natural gas production bounce as it is stripped from the gas stream to be sold as ethane.
            3. Good for our positions in AR, SWN, BCEI, and MGY.
            4. OPEC NGL production growth is expected to be muted again in 2022.
  5. Renewables: 
      1. Sentiment continues to slowly recover (especially in solar and grid).
      2. Renewables are about 40% of assets in the portfolio via a dozen names. 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 and we think a lot of the "bad news" for 2021 is now well discounted in the names.

 

Other Stuff

  • VWDRY - 250 MW contract win in the U.S. for their subsidiary Steelhead Americas who took over the project in 2019. Steelhead is Vestas' NAM development arm. Long term service contract with deliver expected in early 2022 (good to see wins for the 2022 book).  Also notable that Steelhead claims a 3 GW pipeline.  
  • VWDRY - 253 MW win in Russia (4 projects). Deliveries in 3Q21 into 2022. No long term service contract mentioned. The wins take Russian projects powered by Vestas to > 800 MW.
  • Look for requested name updates this week. 

Odds & Ends

Analyst Watch:

  • TBA in comments

55 thoughts on “Monday Morning”

  6. AR – fresh 52 week high with $19 handle.

    MGY – looking for an all time high today.

    BCEI – reiterate expecting fresh cycle highs very soon here and stock remains exceedingly cheap.

    COP – fresh 52 week high.

  8. Strong reversal in all the solar names, ours are all green from sharp red earlier.

    Infrastructure re-optimism at play. Have seen nothing new last few days on tariff question.

  11. re 9 – thanks, as you know we went in there a little faster than usual with the DCA program. Like the base, fine adding higher. This one is about half wind by revenues with a smaller but faster growth solar segment pushing total company growth expectations near and medium term. So any concerns about U.S. solar not having enough panels to go around saps sentiment. See our thoughts on the name here:

    https://zmansenergybrain.com/2021/08/27/t-g-i-f-222/

  22. re 20 – can’t blame ya, it’s been volatile. The name is better with Indigo than without it. 3Q21 conference call should be extremely upbeat as they get a chance to look really smart on that buy as long as natural gas prices are anywhere near current levels.

  25. Housekeeping Watch:

    I’ve not written for Seeking Alpha in some time. Frankly a lot of readers who comment over there are trolls (caught a good bit of negative commentary on AR a couple of quarters back when it fell for a few hours from $11 to $10 ish). $19 now so um …

    Anyway, they’re asking for an article.

    What should we send them?

  32. FANG (unowned) – requested look, tomorrow’s post.

    We have another Permian for Wednesday or Thursday.

    The request line is open.

  36. re 34 – that forms a 22 month cup and handle breakout with the move to new highs today on nearly 2x normal volumes. See our recent update for sensitivity comments on the unhedged portion of 2022 natural gas.

  42. re 40 – I’m pleased with the roll off the lows there. They’ve reworked about 85% of the contracts. The new contracts are based on shared pain contracts that are much shorter term in nature. As such, much of the warning type news is now evaporated from the story. It’s moving with the solar space for now as metals prices are less of a concern.

  46. I just signed up today and should have joined a long time ago. Obviously, winter weather risk is coming for NG. But if we have a typical winter, where do you think NG trades in a few months?

  48. re 46 – thanks.

    I have to step out to a thing but will be around tonight.

    Typical as defined by the CPC as normal would be price supportive to the winter strip.

    Our view is we get a La Nina and then depending on how strong that is we get a bit warmer than normal winter from it in the South Central and Mid Atlantic regions.

    My sense has been natural gas is ahead of itself due to international prices and a big short position in Nymex that keeps getting covered and reloaded. I don’t see $4+ gas next year, given storage and given slowly rising oil production in the U.S. that will drive a non Appalachian based supply response (big ups in the Hayneville and New Mexico) under way now. Offsets have been strong net exports (especially LNG but also Mexico and weak Canadian imports (for a very long time now but may be higher this winter given U.S. prices). Anyway, long story short, storage is low and supply is not a peak but neither are as strong as prices would suggest. My background is equity research and U.S. imports/exports/demand and then production. When I speak to supply I am talking Production + Net Imports (which is net exports – there’s a weekly table in The Week That Was section above for reference).

    Cold snaps can produce much higher city gate prices and given stronger sentiment now and no real price based demand erosion yet (not in power burn, not in Industrial, not in Commercial – at least not that we can see) this year we’d expect some spikey pricing when we do see cooler than normal gas weighted HDD readings.

    Gotta run to a thing, feel free to redirect and I will get to it tonight. And welcome to the site.

  51. re 25. Anything would be interesting.

    COP (?) … gets a lot of articles

    ENPH (?) … ditto, sort of a trendy name

    IEA … almost nothing on SA, so that would be a good contribution, but you may not get eyeballs

    BSM … would be interesting to get your view given the natural gas exposure; but I know that you don’t own

  54. re 51 / 53 – thanks for the thoughts.

    We have written up BSM (unowned) recently (though not for SA.

    IEA is sitting in the draft stage for them. Probably should turn that one in.

  55. Fayetteville pads seeing first activity on them in years (used to be SWN wells, sold to Flywheel) … $6 natural gas will do that.

Comment below here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

s2Member®