Posted by: zmanbackup | July 19, 2021

Monday Morning

Site troubles today. We will advise when the main site is back on line. In the meantime …

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Market Sentiment Watch:  Inflation and Delta on market’s mind.

Housekeeping Watch:  

  • The request line is open
  • Please see the note at the end of today’s post.

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. We included a number of comments regarding the quarter to date.

Ecodata Watch:

  • We get the NAHB home builders’ index at 10 am EST (F = 81, last read was 81). 

The Week Ahead: 

  • Tuesday – Building permits, housing starts, API oil inventories,
  • Wednesday – EIA oil inventories, 
  • Thursday – Jobless claims, existing home sales, leading indicators, EIA natural gas storage, 
  • Friday – Markit manufacturing and services PMI. 

In Today’s Post:

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

Click the link directly below this to …

break

Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades:
    • Sold VCVC down 25%. We kept the warrants.
    • Sold ENPH, up 39%. We may re-enter after the 2Q21 report.
    • Added small to PTRA.
    • Added small to BCEI.
  • ​The Blotter is updated.

Commodity Watch:

Crude oil fell 3.7% to close at $71.81 with a neutral looking weekly from EIA, a move by EIA to up shale play growth again, and uncertainty from OPEC+ (see below) helping with profit taking. Longs vs shorts actually advanced to 9.5x (the highest level of the year) and we see this setting up further volatility. Crack spreads remain healthy but we do need to see more robust, more consistent gasoline demand in the U.S. This morning crude is trading off $2.40 in part on  Covid Delta fears

  • OPEC Watch: Agreement reached. OPEC+ met over the weekend:
    • Production to increase by 0.4 mm bopd per month beginning in August.
    • 5 countries received an aggregate base line increase of 1.63 mm bopd over prior quota levels (no effect on near term group production, just a higher baseline to eventually get to)
    • Russia says it will be back to pre Covid production levels in May 2022 and is as part of the agreement increasing volumes by 0.1 mm bopd (or 25% of the monthly increase).
    • OPEC+ agrees to monthly meetings. 
    • OPEC+ now seen as unified with long term plan to stick together.  

Natural gas inched up 0.2% to close at $3.682 last week with the strip rising 2 cents to $3.49 despite last week’s larger than expected storage build.

  • Storage is now 17.1% below year ago levels and 6.7% below the five year average.
  • We are on track for bullish storage peak and 2022 trough levels at this time.
  • Nymex shorts remain very much in place (the more to cover this coming winter),
  • This week we expect a smaller build.
  • This morning gas is trading Up 7 cents.

Weather Watch:

  • Last week:  Cooling Degree Days (CDDs) came in at 79 vs 73 normal and 76 in the prior week.
  • This week’s forecast:  This week, CPC predicts CDDs will hold flat at 79 vs 75 normal.

The Week That Was

Stuff We Care About Today

The Five Things(Significant changes or re-highlights in RED);  we are shortening this section to “just the key of key thoughts” on a weekly basis. 

  1. Biden Admin: 
    1. Renewables. We seeGreen/Renewable 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.
    2. Iran Nuclear Deal – Uncertain If/When A Deal Will Be Struck – indirect talks continue
      1. Possible sanctions will come off Iranian oil barrels this year but chances appear to be falling. 
      2. Iran is doing several things that will make a deal tougher to reach.
    3. Executive Orders ~  We have become less concerned about Biden Administration really impacting oil and gas companies. 
      1. Watch for drill and frac setback ruling – early 2022. 
      2. Expect NO nationwide frac ban. 
      3. Federal permit resumption – summer 2021. 
      4. Reserve liability component.  No news is good news for oil and gas names here. Very very quiet on this front. 
    4. Infrastructure – Very uncertain – vote this week, unlikely to pass. Would likely be good for renewables segment, especially EVs and grid.
  2. Coronavirus:  Delta Numbers are NOT Good.  
    1. U.S. is mostly open.  Big ups lately among unvaccinated. Concern re fall / winter.  
    2. Rest of world far less vaccinated.  Outside U.S. said to be 1% of total population. 
    3. Variants largely addressed by vaccines.
    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.  In progress. 
  3. Oil Production / Sentiment:
    1. U.S. Production – Production edging higher now; expect about 0.1 mm bopd per 6 week period.  
    2. OPEC Production – increasing by 0.4 mm bopd per month beginning August 2021 forward.
    3. U.S. Rigs – 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.
    4. Frac Spreads:  242 last week (another 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.
    5. Oil Inventory Levels:
      1. Crude stocks are ~ 8% below five year average.
      2. Gasoline stocks are below five year average. Need more consistent demand rest of summer. 
      3. Distillate stocks are 4% 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.
  4. Natural Gas Sentiment:
    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 – uncertain at this time, likely low but not as low as expected previously due to higher U.S. pricing. 
      4. Production is above year ago levels, but still off peak.
      5. Therefore, Net supply is down YoY and not set to improve (significantly) until later this year.
    2. Watching for higher price impacts on gas-fired generation.
    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 at 1 year plus highs… week after week – very strong.
      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.
    4. Infrastructure Bill – unsure if this can pass, will hurt sentiment in the space when/if it fails, at least briefly. 

2Q21 Earnings Calendar So Far

Housekeeping Watch:  I will be on the road the first week of August taking one last partial vacation before intern #1 departs for college. We will cover all the earnings that week but the posts will be even more bullet point format than usual.

Odds & Ends

Analyst Watch:

  • TBA in comments

Responses

  1. Just after the open:
    Oil off $2.68 at $69+
    NG up 8 cents

  2. Erratic trade, sitting on hands for the opening hours I think. Have had one surge from down 4% on day to down 2% already.

  3. Much of this appears to be Covid Delta related.

    Locally noting our vax rate has 2x’d in the last two weeks as cases started jumping up.

  4. Oil off $3 at $68.50 now.


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