Posted by: zmanbackup | March 28, 2022

Monday Morning Backup Site Post

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Market Sentiment Watch:  Big week for economic data. Big week for oil news with JCPOA 2.0 back in the spot light. Energy eyes also nervously eying Covid in Shanghai.

Here is a Ukraine relief donation option. 

Housekeeping Watch:

  • Please bookmark our back up site, just in case:
  • ZBLAST Email update:
    • We are transitioning to a new contact system and are scrubbing our contact list this week.  
    • Some former subscribers who have been receiving ZBLASTs will be removed from the notification list. If they wish to continue receiving emails they can choose an option from the Membership Options link at left. 
    • We are working to make sure that emails get to your inbox and not your spam filter. 
      • We sent out a test email to Monthly subscribers last week. If you are a Monthly subscriber and didn’t get it please email us. 
      • We will send out test emails to “Quarterly” subscribers today at 10 am EST. Please let us know if you don’t get it. 

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 the advance trade in goods at 8:30 am EST (no forecast, last month was -107.6 B)

The Week Ahead: 

  • Tuesday – Case-Shiller home price index, consumer confidence, job openings, job quits, 
  • Wednesday – ADP employment, GDP revision, EIA Oil Inventories, 
  • Thursday – Jobless claims, personal income, consumer spending, Chicago PMI, EIA Natural Gas Storage, OPEC+ Meeting, 
  • Friday – Nonfarm payrolls, unemployment rate, average hourly earnings, ISM manufacturing, construction spending, car sales. 

In Today’s Post:

  1. Holdings Watch – Positions page is updated. 
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch:

ZLT (Zman Long Term portfolio)

Commodity Watch:

Crude oil re-rallied 10.5% to close at $113.90 last week with 12 month strip up 7% to $100.74 on the back of a solid EIA weekly and Houthi hits on Saudi oil infrastructure and despite no firm movement to embargo Russian oil volumes.  

  • OPEC+ Watch:  OPEC+ meets on Thursday. Current expectations are for another increase to group quota of 0.4 mm bopd.
  • Kuwait Watch:  U.S., U.K., and Japanese banks agree to loan Kuwait $1 B to increase production capacity.  
  • Covid Watch: Staggered lockdowns for Shanghai were ordered due to record new Covid cases (notably port to remain open).
  • This morning crude is trading down $6+ early (strong week last week+Covid+elevated CFTC net spec long position all helping to push an over sized reaction). 

Natural gas jumped 14.6% to close last week at $5.571 with the 12 month strip up 12.7% to $5.61 (yeah, firmly in contango and higher than prompt). European prices stopped falling last week after a couple of weeks of sharp profit taking as the U.S. and other countries agreed to send extra LNG volumes Europe’s way. 

  • Still, we have entered the shoulder season and volatility and price pull backs are normal.
  • Storage fell just below the low end of the storage range we had all year long.
  • Look for the first injection of the season this week.
  • We look for strong LNG exports and for storage to remain in deficit near term and medium term. 
  • We will issue a peak storage target range in May.  
  • This morning gas is trading down 3 cents.

Rig Count Watch:

Weather Watch:

  • Last week:  Gas-weighted Heating Degree Days (HDDs) came in at 97 vs 121 normal and 114 in the prior week.
  • This week’s forecast:  This week, CPC predicts HDDs will rebound to 117 vs 120 normal.

The Week That Was

Stuff We Care About Today

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

  1. Geopolitical and Political: 
    1. Iran Nuclear Deal (JCPOA 2.0) – “sources” say deal THIS WEEK (they said the same thing last week too). 
      1. Uranium enrichment beyond JCPOA limits continues. Iran wants $10 B in funds released pre deal, an end to most if not all sanctions, and demands a guarantee US won’t leave JCPOA again. Iran is said by U.S. general to be much closer to making a bomb than previously thought. Verification remains a sticking point. 
      2. Israel says it will not be bound from striking Iran by any agreement. 
      3. U.S. said to have prepared alternative measures if deal doesn’t happen.  U.S. says in the ballpark of getting a deal done.  U.S. waived sanctions on Iran civilian nuclear program. 
      4. Feels like the U.S. wants a deal for more than just nuclear proliferation reasons … wants a deal to help lower oil prices. 
      5. Iran said to be a few weeks away from “breaking out”.  This was a few weeks ago now. 
      6. Russia backed down on demands.  
      7. Iran struck a U.S. facility in Iraq on 3/13/22. Yemen struck Saudi facilities on 3/20 and again on 3/25 using Iranian support. Odd things to do when you want the deal to work. 
        1. We don’t understand how international signees to this deal would exclude oil from sanctions for future Iranian non nuclear transgressions. 
    2. Russia Ukraine War 
      1. Sanctions, oil import bans, and fear on the part of traders and shippers appear to have reduced Russian oil exports by > 1.5 mm bopd. 
        1. The EU is not banning Russian oil or natural gas volumes.
      2. Coordinated SPR release of 61 mm barrels announced March 2022. 
        1. The US says another release is on the table. 
      3. The war increases likelihood of JCPOA 2.0 
      4. Prompted new U.S. / Venezuela talks but these appear to be stalled now.   
      5. Prompted a deal to supply an incremental 1.45 Bcfgpd of U.S. LNG to the EU this year. We see this as doable. 
    3. Oil & Gas
      1. Biden Administration want lower gasoline prices … but less oil production  wait, no, more U.S. oil production
        1. Coordinated SPR release announced November 2021 and March 2022. 
        2. Export ban – unlikely.  
        3. Frac ban – very unlikely.  completely off the table. 
        4. FTC to investigate “oil and gas” players for price fixing – 11/17/21.  We said this was an empty threat. Now its really super empty. 
        5. Lease sales have resumed.
        6. Proposal to increase royalty rates and bonding fees on sensitive lands (10/26).  
        7. Pipeline approvals remain a sticking point, especially in/out of Appalachia. 
          1. FERC approved 3 pipeline projects (some new pipe, some compression) in late March.
        8. Fast Track LNG has been proposed by some in the U.S. congress, Canada, and Europe.
          1. FERC removed some barriers to approvals late March.
  2. Oil Sentiment: Strong 
    1. Coronavirus:  It’s still out there but  COVID NOT ON WORLD’S MIND AT THE MOMENT.  
      1. The next variant (is not on the market’s mind).  Scientists saying When, not If, and no guarantee it will be milder. This is our single largest worry point for oil in 2022. Oil despises Covid demand impacts. 
        1. Omicron 2 variant cases are rising. 
    2. U.S. Production – Production should be edging higher now but weekly EIA data has been stuck at 11.6 mm bopd for 2 months now and is down since the start of the year:
      1. Expect about 0.1 mm bopd per 3 to 5 week period.
      2. Expect 0.5 to 0.7 mm bopd increase in 4Q21 to 4Q22 U.S. Lower 48 oil production. 
        1. YTD production is down 0.2 mm bopd according to EIA.  Freeze offs? Slow start to completions?  Bad data?
    3. OPEC+ Production – increasing by 0.4 mm bopd per month – program began August 2021 forward. 
      1. March 31st meeting – expect production to rise 0.4 mm bopd. 
      2. OPEC+ is running > 1.0 mm bopd BELOW output limit. 
        1. Saudi said it cannot be held responsible for missing output targets due to terrorism. 
      3. Expect U.S. net imports to be higher in 2022 vs 2021 but remain low from a long term standpoint. 
      4. Russian volumes are being significantly impacted due to finance / sanction fears.  
    4. U.S. Rigs
      1. Discipline and maintenance or “maintenance plus” (1 to 5 % type growth) budgets more common than not but rigs will rise in 1H22 to help maintain rig / spread / “maintenance plus” programs. 
      2. Rigs at post pandemic high.
      3. We expect slower pace of growth in 1H22 and slower still in 2H22. 
      4. Expect DUC building to start in April/May 2022. 
    5. Frac Spreads: 266, no update last week ~ seasonal dip – expect new cycle highs in April.
      1. 2022 high so far of 290.
      2. 2021 high was 271.  Spreads average 224 in 2021.
    6. Oil Inventory Levels: At generally price supportive levels. 
      1. Expect positive YoY comparisons on U.S. throughput near term with weak product stocks and very strong cracks.
      2. Expect a shallow 2022 spring maintenance trough. 
      3. Expect throughput to move to a new pandemic period high in 2022, but to remain below all time highs. 
      4. We’d really like to see better gasoline demand but don’t expect it near term due to high prices at the pump. Cracks are strong as noted and this may mean refiners do what they can to max dist vs gasoline production. 
      5. Distillate stocks are sharply under stored. 
  3. Natural Gas and NGL Sentiment:
    1. Natural Gas Production is very slowly rising
      1. Biggest increases coming from New Mexico and Louisiana
      2. More muted growth from Appalachia (due to pipeline constraints; if you grow so does the basis differential).
      3. Expect 2022 to see grow to 2.5 to maybe 3.5 Bcfgpd. 
      4. Majority of big cap Gassy names are engaged in “maintenance budgets/programs”.  Several see back end loaded growth with lower first halves. 
    2. Supply is rising less quickly
      1. LNG exports pressing 13+ Bcfgpd of late.
        1. All time high of 13.77 Bcfgpd set March 2022 for a single day. 
        2. Capacity to rise from just over 12 at YE21 to just over 14 Bcfgpd by YE22. 
        3. More capacity approved for export week ended 2/11/22 and more likely approved 1H22.  
        4. AR’s view of LNG export capacity:
          1. 11 Bcfgpd accessible to AR now. 
          2. 15 Bcfgpd in progress. 
        5. SWN’s view of LNG export capacity:
          1. 12 Bcfgpd in service now and fully utilized. 
          2. 3 Bcfgpd at FID
          3. > 20 Bcfgpd in “next wave” projects under consideration. 
      2. Mexico exports holding just under record high levels. Demand seems more consistent lately. Exports to Mexico set a new record twice in Summer 2021. We may see a move to just over those record levels in summer 2022.
      3. Russian LNG exports being impacted tightening an already tight LNG market. 
    3. Watching for higher price impacts on gas-fired generation this summer.
    4. International natural gas pricing remains very high. 
      1. All time highs were set for European natural gas in December 2021 and again March 2022. 
    5. Net short position remains near 2021 record. 
    6. Natural Gas Storage:
      1. Significant deficit to year ago and five year average levels. 
      2. We now expect End of Season storage to fall just below the low end of our long expected 1.4 to 1.6 Tcf range. 
    7. NGL prices to be strong over the winter and through 2022.  So far so good. New highs for portions of C3+ recently and ethane has warmed up as well in the opening weeks of 2022. Now at highest prices of the cycle for the composite and several components. 
      1. Propane inventories are below low end of range for time of year. 
      2. In 2H22, rising ethane recovery may slow a U.S. “natural gas” production growth as it is stripped from the gas stream to be sold as ethane.
        1. Large ethane cracker to come on line in U.S. mid 2022. 
      3. Strong NGL pricing is positive for our positions in AR, RRC, SWN, BCEI (CIVI), and MGY.
      4. OPEC NGL production growth is expected to be muted again in 2022.
      5. U.S. NGL production from the refining segment should pick up modestly in 2022 due to higher throughput. 
  4. Renewables: 
    1. Infrastructure Bill signed.
      1. Positive for our IEA, SHLS, STEM, PTRA, ENPH, and probably for our TPIC and VWDRY too though supply chain may hold them down longer.  Most see the impacts on revenues arriving in 2023. 
      2. What’s in it that matters to us:
        1. Roads and Bridges – $110 B (IEA)
        2. Public transit – $39 B (PTRA)
        3. EV’s – $7.5 B for charger stations, $5B for E-buses increases to EV tax credits (new and used) – GOEV, PTRA, SHLS
        4. Modern Grid – $65 B (STEM)
        5. Airports – $25 B (maybe IEA)
      3.  Note there is a proposed SPR sale to help pay for some of this. 
    2. Build Back Better – Expect to see elements broken into new bills sometime in 2022 or 2023 with pieces finding their way into “Make It In America” styled bills.  Probably late in the year or 2023 now. Midterms will be key if after:
      1. BBB energy items of note: 
        1. Incentives for U.S. made wind, solar, EVs. This includes PTC (wind and solar to 2026) and ITC (solar, geothermal, also to 2026), extensions. For the first time energy storage, linear generators, biogas properties qualify for the ITC. 
        2. Includes up to a $12,500 EV tax credit. 
        3. Mechanism to reduce roof top solar cost. 
        4. Bolstering of domestic supply chain via incentives, grants, loans in steel, concrete, aluminum.  
        5. Mechanism of promoting transit buses in addition to what’s in the signed infrastructure bill. 
    3. Renewables likely see stronger demand due to Russia/Ukraine.
      1. In Europe – several wind projects are being talked about and a number are being accelerated.
      2. In Japan – we’ve seen one wind project acceleration. 
      3. We’ve see a number of nuclear extensions spoken to.  
  5. 4Q21 Earnings Season: Done and almost exactly as expected as far as 2022 programs. 
    1. Maintenance to be the rule, not the exception for 2022 gassy budgets (with only a few smaller growthy names).
      1. CNX (unowned) declared what amounts to a maintenance budget: 1.5 Bcfgpd (gas portion). 
      2. EQT (unowned) reiterated maintenance of 5.5 Bcfepd. 
      3. AR reiterated maintenance (really slightly less) of 3.2 to 3.3 Bcfepd (lower in 1H, higher at 3.4 to 3.5 Bcfepd in 2H22).
      4. RRC reiterated maintenance for 2022.
      5. SWN reiterated maintenance for 2022.
      6. CTRA (unowned) guided to lower natural gas only volumes. 
    2. “Maintenance plus” or low to mid single digit growth to be common for oily names.
      1. Some smaller names like HPK to show massive growth.
      2. MGY to show mid single + digit growth. 
      3. CIVI expected to be maintenance.
    3. Budgets to be up 10 to 20% domestically on fewer DUCs to complete vs D&C wells and inflation. 
    4. Oil Service was more upbeat (so far so good on this comment via comments from SLB and unowned names HAL, BKR, RES.
      1. Russia sanctions will impact some larger oilfield service players. 
    5. Active frac capacity in short supply – prices rising
    6. Sand is in short supply, prices are rising, capacity is constrained. 

Other Stuff

  • Look for additional cheat sheet updates near term (both owned and unowned names). 
  • Look for the first post 4Q21 update of the Gassy Players update soon.

Odds & Ends

Analyst Watch:

  • TBA in comments


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  2. Primary site is back online.

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