Wrap – Week Ended 2/23/24

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We were flat on the week last week after the prior week's 8+% bump higher and the portfolio is down 2% on the year. A few thoughts as we approach the 7th inning stretch of the 4Q23 energy earnings season. These are largely not ordered. 

• Natural gas sentiment is overly weak.
  • Storage remains in surplus and spring end of season thoughts have drifted above 2 Tcf.
  • Production is in plateau.
  • Supply (production less net exports) is in plateau and about to be in plateau minus. 
  • Power burn is more resilient than expected. Industrial is too. Heating load is about to matter a whole lot less. 
  • The non commercial short position jumped bigly last week.
  • There has been a from "maintenance mode" to "maintenance mode minus" 
• U.S. Oily names are still greatly preferred among upstream investors 
  • This is unlikely to change this year. 
  • There appears to be some consensus building that OPEC+ will roll voluntary curtailments through 2Q. 
  • Cracks are supportive of a shallow spring maintenance season. 
  • Inventories are not overstored and distillates are again back into meaningful deficit.
  • Net imports to the U.S. remain bottom of barrel. 
  • Many large cap E&Ps are looking to hold oil volumes flat to 4Q23 levels this year.
  • We, like many, expect more consolidation among the large and smid cap players.
    • We were please that Bakken player CHRD picked off ERF this week and not DVN.
    • We expect other Rockies consolidation later this year.  
  • US oil production growth will be tepid in 2024. 
• U.S. Oil Service
  • Doom is overdone.
  • Oil rig count is now starting to rise - this was expected and is the normal seasonal rebound if a little under our end of year thoughts. 
  • The active frac spread count is also rising. Also expected and a little ahead of our end of 2023 thoughts. 
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  • Discipline among rig and frac spread operators appears to be universal. 
  • See our reviews of LBRT and PTEN 4Q23 reports. 
  • A move by gassy players, led by CHK and likely by SWN as well and somewhat by CTRA to bank TIL wells and not just DUC wells is good for service names and good for sand names. 

We are through 46 names that we own or pay attention to of the 4Q season and have 30 to go. Next week is the season peak with 22 names reporting on top of each other. Investors are bored. Analysts are tired. We remain constructive for oil and have been adding to oily, gassy, and select oil service names. 

Questions and comments under The Wrap will be addressed in the Monday post as the weather is spring like here and not raining for the first time in recent memory. 

Questions about the site may be directed to zmanalpha@gmail.com 

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Have a good weekend,

Z.