Canadian energy stocks are all but a guaranteed ticket to substantial gains.

June 15, 2017
by EstevanOutsider | YA7OO.com

UNJUSTIFIED RESPONSE TO AN UNFAVOURABLE EIA REPORT

So June 14, 2017 after a poor EIA report showing a light drop in crude inventories and slight gain in gasoline was enough to reign hellfire upon Canadian energy stocks like nobody could have predicted. Faint hearted, panicking investors seemingly pressed “sell off” as fast as they could, after watching oil drop 4.5% ($1.50) through the trading day.  Previous to that, on June 7, the EIA showed a very alarming and surprising build which also resulted in a massive sell-off.  Until June, crude draws were showing strong declines which the energy stocks were evidently responding too–albeit, slowly, compared to how they did in 2016. With the collapse in energy and oil prices, came down the TSX, moving negatively a staggering 200+ points for over a full percentile of its massive wealth. The question is why?

THE SPROTT ASSET MANAGEMENT FUND IS A GREAT EXAMPLE

Today on BNN, they hosted well known energy trader Eric Nutall of Sprott Energy Asset Management Fund. Mr. Nutall’s comments were reassuring to a bullish person like myself (who finds himself -30% on the year) who still believes the industry is due for a massive rebound any moment now.  Nutall’s fund is down over 40% on the year, some of his earlier names were: Trican Well Services (TCW), Cardinal Energy (CJ) and also Spartan Energy (SPE), before switching to frac sand producers in the US which have not fared much better. I believe Trican is the remaining Canadian name he holds (-6.98% on the day of June 15, 2017) and 15% on a very disappointing week after having an encouraging month. Mr Nutall reminded viewers that last time his fund was down by 40% in 2016, it rebounded for 120% later that year.  He believes that energy investors should be patient and so do I.  Unfortunately Eric Nutall does not believe in Canada at the given time, I know he is very pessimistic–and rightfully so– of Trudeau’s carbon tax which has hindered Canadian business and saw a wide scale exodus out of Alberta.  Fortunately of the most unfortunate, as Canadian energy stocks have faltered this year, the US energy sector has also performed poorly. That is re-assuring. It mean’s that Trudeau & Notley, Andrew Weaver and John Horgan of the BC NDP have not scared away the entire crowd, yet.

ARE CANADIAN ENERGY STOCKS WORTH IT? ABSOLUTELY!

Very rarely in life will investors have such an easier time at making (all but) guaranteed investments back then right now in the Canadian energy industry. Stocks have depleted to a point where many names are lower then they were at the 52-week lows when oil was in the $20s and some companies were facing financial crisis. Fast forward a couple years, oil is hovering around $50 and most Canadian energy names have posted positive first quarter Q1 results. Why the fear mongering then? Lots of negativity in the industry surrounding the political nature of Canada, i.e: carbon tax, pipelines protests, prospect of US imposed BAT, catastrophic oil prices and the biggest oil crash of the millennium.  Talk of Tesla taking over the world, as unsubstantiated and ridiculous as that is, nevertheless has uninformed traders believing the Jetson-style illusions. “Green energy” taking over and killing fossil fuels is getting more air time then ever, despite it, like Tesla, being another very distant illusion that is unlikely to occur in my lifetime. Facts are facts, Canada is the largest supplier to the United States and fossil fuels remain an imperative part of our planet and that will not change for many decades to come, if ever.  This is a great time to go long on Canadian energy stocks, you could hold them for a few years and the prospect of them tripling is very possible if not even likely. Oil has a history of not trading at median prices, it tends to be either higher then high or lower then sustainable. Right now, it’s by far, lower then even the guys in Texas can tolerate despite what is reported at times about the Permian profiting at ridiculously low levels. Nobody is winning at these levels long-term.

ENERGY COULD SKYROCKET ANYDAY NOW

There is a real prospect that demand can overtake supply, some people suggest that is already happening now. Saudi Arabia is desperately turning to oil market manipulation, with an apparent looming 35% cut to the United States which should shock the EIA and inventory reports, presumably driving up oil prices and rather quickly.  War is on the horizon in the Persian Gulf, any type of armed strife could send oil prices striving.  People seem to forget the glut of oil is not natural, it was imposed by Saudi Arabia who flooded the market in a catastrophic fashion to destroy oil prices. The 500+ million barrels in US inventory is not a natural result of normal course of business. This is the result of market manipulation, initially by the Saudis and later by the frackers in Texas who sought revenge against the Kingdom.   It would be a very sheepish endeavour to sell off your Canadian energy stocks right now, if anything, now is the time to lower your average cost or a god given entry point if you haven’t invested yet. In just a few months, it wouldn’t be alarming to see a 50% return. Of course, one should be prepared for some downwards volatility as nobody can predict without error the direction of oil.

STAY LONG & DON’T QUIT NOW

It does seem far-fetched in this authors opinion for oil to continue dropping and if it does, not for much longer. A potent upwards reversal, likely exceeding OPEC’s $60 benchmark will, in my opinion, be shattered and that is inevitable. I expect oil to surpass $70s and possibly even into the $80s or higher within a year, but I have been wrong before.

It’s only a matter of time, folks. Be patient and don’t surrender. Share prices are being manipulated and heavily shorted right now. Selling your shares right now will only make other people rich off your hard earned investments. Selling your shares in a year or two, I would expect them to be no less then 100% of what they are as of June 2017, if not even more. Over the next few months, I will continue to fortify my positions until the industry re-emerges.

GLTA/ Estevanoutsider.

Bullish: GCC gang up of Qatar is really a war on Iran

June 6, 2017
By Christopher Kanaan

A tiny island facing a very large blockade

The tiny island of Qatar is facing a very large isolation– which really isn’t good for Qatar as the only land border shared is with Saudi Arabia, which provides almost all goods and services and even most importantly, food.  The sudden reason for the isolation? Financing and support terrorism, including: ISIS, Muslim Brotherhood, Taliban, Hamas and the worst from Saudi Arabia’s eye: arch enemy Iran.

Reasons for the blockade of Qatar

While there could be multiple possibilities for the sudden compelling isolation of Qatar (including Trump’s recent visit), the ones I think most pertinent related to oil and gas prices as well as Iran.  Iran, while not a member of OPEC, has come off sanctions and is now preparing to open up its oil market to international investments.  Doing so, would be a major threat to OPEC nations in a time where the market seems to be oversupplied.  Qatar is been seen cozy towards Iran.  Recently on Trump’s first visit to Saudi Arabia, the US President rallied the troops from over 50 Islamic countries to “isolate” Iran and eliminate radical ideology.  Of course for the Saudis, they consider a woman driver such as famous Saudi female activist (and “terrorist woman driver”) Manal al-Shariff as a potential terrorist and liberal poet such as jailed Raif Baddawi as propping up “radical ideology” for expressing political dissent.  For the Saudis however, no ideology is more “radical” then Khoeminism or Shia’ism from Iran. Qatar’s Al Thani rulers dissented on Saudi plans to isolate Iran and expressed concern it would create instability. Not exactly what the Saudis wanted to hear at a time of being engaged in a war with Iranian proxy Houthis rebels next door in Yemen.  Saudi Arabia is clearly paranoid of Iran and likely assumes that Iran’s opening of the west presents a serious challenge to The Kingdom if they don’t halt plans.

Taking the blame off themselves and putting it on Qatar

Saudi Arabia’s Al Saud family can’t exactly be too comfortable themselves. They have been accused of supporting “Wahabism,” the ideology that the ISIS (Daesh, Islamic State of the Levant, Al Qaida & Bin Laden) follow and with recent terrorist attacks in Europe and elsewhere, many are now focusing on that state sponsored Wahabi ideology and asking why their governments call Saudi Arabia an ally.  Accusing Qatar of being the terrorist state deflects the eyes off themselves, at least for the time being.  The UK Labour Party, looking better in the looming polls by the day, are adamantly pursuing an establishment of arms deals with Saudi Arabia for mass atrocities against civilians in Yemen. Similar calls have been made in Germany, Sweden and elsewhere.  Prior to the ISIS attacks in Europe was the Arab Spring.  Saudi Arabia’s protests were largely ignored but were prevalent in the eastern sector of the country, largely where the disgruntled Shiite (ideology of Iran) minority lives. For now, the Saudis can pretend to be the good guys. The friends of the United States, defenders against terrorism and an ally of the west. Just for now, though.

Doing “whatever it takes” to prop up oil prices

Saudi Arabia is absolutely desperate for higher oil prices– as is Russia and other OPEC nations which are seeing humongous deficits that can only be cured my higher oil prices.  Khalid Al Salih, the Saudi energy minister recently agreed that he and Russian counterpart, Alexander Novak, that they would do “whatever it takes” to raise oil prices.  With a negative market response to the OPEC extensions, the Saudis couldn’t have felt too good. The market was expecting deeper cuts as their initial cuts were not evidently not sufficient.  Nonetheless, the Saudis claimed they will see the results soon.  Meanwhile, I believe the Saudis conveniently started a conflict with Qatar to entangle also Iran and bring back that geopolitical risk of instability.  There is no more valuable geopolitical risk then the one that lives in the Hormuz Strait. If any type of armed conflict starts in the Hormuz Strait, we could see oil prices potentially and quickly surpass their previous highs.  Even the risk of war should act as a premium; if the Saudis are looking for oil in the $60s, it seems quite logical that they should obtain that support level should geopolitical risk (combining with inventory drops in the US) be even prospectively imminent. The natural gas market should see the greatest geopolitical premium as gas is imperative to major countries power plants and they require a steady and unquestionably stable supply- unlike oil which could potentially be acquired by other suppliers.

What to watch for now

Any escalation (or more unlikely, de-escalation) should be taken very seriously. The accusations of supporting the Islamic State a day after the murderous savage attacks in Europe are hardly forgivable.  Donald Trump reinforced the Saudi view on Twitter, confirming that he supports action against Qatar and even encouraged it. There is no chance of turning back now. Personally I would like to watch for any interveners— already, Kuwait is trying to act as an intermediary.  The ones trying to intervene on behalf of Qatar may become cynically seen by the Saudis and other GCC allies trying to isolate Qatar and Iran. The reluctance to intervene seems evident with the Turks, whose leader Erdogan did not mention Saudi Arabia by name when condemning the Qatari boycott.

Will Turkey be pulled into the equation?

Turkish President Tayyep Erdogan has taken the side of Qatar for the most part, claiming the allegations are untrue and reconciliation should take place immediately.  I find it important to note the US-backed operation to re-take ISIS capital of their caliphate, Raqqa, is also imminently to begin. This will include using Turkish foe Kurdish fighters, armed by US, to fight ISIS; something that Turkey vehemently opposes as they see the Kurds as their own enemy.  Turkey under Erdogan has also been accused of supporting terrorists in Syria and facilitating their entry.  Erdogan has also made threats to Europe, stating they wouldn’t be safe on their streets. It will be interesting to see if Turkey will be dragged into conflict with Saudi Arabia or the United States, or possibly by proxy war with the Kurdish militias the USA is strongly backing in both Syria & Iraq.

Shipping lanes, re-fueling, Dolphin Pipeline 

United Arab Emirates has the ability to shut down the Qatari Dolphin natural gas pipeline.  This would send natural gas prices flying, most likely, and could send countries like Japan or India into disarray as they rely on Qatari gas imports for power plant operations.  UAE has banned Qatari ships from re-fueling.  Egypt is also considering a ban on Qatari ships in the Suez canal.  Qatar could be forced to cozy up to arch Gulf rival, Iran, to use their land transportation and also seaways.  Qatar as an Iranian ally will not be taken lightly by the Saudis and Co. 

Bullish news, nonetheless

The initial reaction to the sudden blockade of Qatar was bullish. Crude oil went up around 2% before subsiding and going back into the red over supposed fears that this could break the OPEC pact. I beg the differ on any bearish element to the dilemma facing Qatar, it’s extremely bullish news and could open up a whole new can of worms. The can of worms that could throw the Mideast back into chaos and send oil prices to the moon.  Al Jazeera is a powerful indoctrinator, watched by millions of Arabs & Muslims around the world and staunch pan-Arab, politically active Islamist groups such as the Muslim Brotherhood are backers of Qatar. If Iran gets involed, it could really get out of hand and there are no limits to the potential of “bullishness” deriving from a conflict like this.  While this news is certainly not good for Qatar, for energy investors, I think it’s a great reason to believe that the crude forecasts of $50s for 2017/18 will be very wrong.

Bullish geopolitical alert: Qatar sidelined by Saudi & Co.

June 4, 2017
by Christopher Kanaan

QATAR ACCUSED OF SAUDI’S “CARDINAL SIN” (being pro-Iranian)

So we have a case of breaking news. Qatar, the world’s largest supplier of natural gas and one of the most oil rich nations in the world has just been accused of supporting Islamic State, Iran, Al Qaida and the Muslim Brotherhood by their beloved neighbours.  The land border between Saudi Arabia and Qatar has been shut and apparently diplomatic relations have seized. United Arab Emirates, Egypt & Bahrain also have apparently taken action against “terrorist” Qatar.

SAUDI DISMAYED BY QATAR DECLINING ANTI-IRAN AGENDA

This may be to due to with the fact Qatar took issue with Saudi Prince Mohammad Bin Salman’s plan for a gang-up on Iran which Qatar evidently saw as promoting sectarian tension, or instability in the region with their powerful Iranian neighbour. President Donald Trump encouraged Saudi Arabia and the other Sunni Islamic nations to “gang up” and sideline Iran during his state visit, the first to the Middle East.  Qatar is an easy target. For quite some time, they’ve been accused of providing exile to powerful Muslim Brotherhood figures. They are also home to Hamas, a terrorist group that the United States vehemently opposes.  It’s hard to imagine Qatar being able to muster much sympathy from the United States or other Sunni Arab countries considering the accusations and clout on part of Saudi Arabia, Egypt, UAE and potentially other typical allies.

QATAR IS AN EASY AND HARMLESS TARGET FOR SAUDI ARABIA

Marginalising Qatar may be a convenient play by Saudi Arabia and friends to raise the oil prices.  Qatar is a harmless nation that can’t really do much to the powerful Sunni bloc which surrounds them.  As a Sunni state, it’s hard to imagine Qatar falling into Iran’s axis though the two nations do share a passion for radical “democratic” political Islamic groups such as Hamas and the Muslim Brotherhood.  While Saudi Arabia does support the most extremist form of Islam– known as Wahabism, their official state doctrine, the Saudis do not tolerate the least amount of political dissent or politics at all. Qatar has been eyed as a threat since they used their state media, Al Jazeera, to rally up the masses during the Arab Spring, which also saw Saudi Arabia fall into sectarian strife though the human rights atrocities against the Shia minority were largely ignored.

WHERE DOES IT GO FROM HERE?

It is too early to say exactly where things are headed, or if this is the beginning of something much larger- but from an investors viewpoint, this news must be taken as strongly bullish. Qatar is the world’s largest supplier of natural gas and puts out over 2.3 million barrels of crude per day.  Taking Qatar offline, even 50%, would be considered “deeper” OPEC cuts without any consensus.  While at this point, there isn’t evidence to support the Saudi’s and Co. will attempt an all-out blockade of their tiny defenceless neighbour, it certainly is a possibly and even the slightest impediment of energy shipments from Qatar could send crude prices flying.  Any type of blockade would likely require some type of endorsement of the US, since the United States has an extremely large military base in Qatar.  Saudi Arabia is desperate to raise the oil prices, I believe it’s not a coincidence as to why they’ve chosen to escalate their rift with Qatar now.

Week ending June 2, 2017 was a bad week: Oil indifferent to inventory draws.

June 4, 2017
by Christopher Kanaan

INDIFFERENCE TO INVENTORY DRAWS

So the revered inventory draw came and went. On Wednesday, thanks to Memorial Day Weekend, the API (American Petroleum Institute) released it’s weekly inventory report. It was a staggering decline of nearly (-9 million barrels) of crude oil. Finally, so we thought, good news; on Thursday, also a day late due to US holiday, the EIA data confirmed the good news with a tiny discrepancy of (-2) million barrels off, for an official draw of 6.3 million barrels of oil from American inventory, blasting away the forecast of only 2.3 million speculated.

Coming off some great news, myself and most other energy investors would have certainly expected a typical surge on bullish reports. Coupled in part with an OPEC extension the week prior, which also unleashed a counter force to what should have been: a strong decline in oil price!  What is going on?  Bullish news can’t prop up energy stocks and bad news can destroy them. Almost like a doomsday scenario, and I’ll admit, as one of the more bullish believers in the energy market and higher oil prices, I was flabbergasted.

LOST MOMENTUM DESPITE BULLISH VARIABLES

Momentum certainly isn’t on our side currently. The bearish oil skeptic side has taken control of the markets and in my opinion, the negative market reaction is an overreaction which cannot be substantiated with logic. There are plenty of positive signs in the energy market that investors are overlooking, such as:  consecutive strong, forecast defying declines in US inventory, steadfast dedication on part of Saudi-Russia to uptick the market, OPEC extensions with the possibility of deeper extensions in July, summer driving season with strong demand, IEA reports of a looming deficit, good market data from both Europe and United States, even here in Canada. Lots to be bullish on.

CANADIAN ENERGY COMPANIES, STRONG RECOVERIES

Despite all of this, the market has currently lost its confidence. Canadian energy companies are rebounding gradually but well. Quarterly profits in Q1 were mostly positive across the board. Canadian energy companies are making money at prices hovering around $50s. Pipelines have been approved, the Keystone XL and KinderMorgan have great potential to enhance the Canadian industry to new levels unseen before. Sets backs like the poor results from BC election’s, which saw the fringe left wing extremist Green Party & anti-pipeline NDP elected, have likely had an adverse impact on investor confidence but it is positive to see Trudeau defend the federal decision and continue to back the pipelines.

IGNORE THE PESSIMISM AND REMAIN BULLISH, IF BULLISH!

Going into the 2nd week of July, I believe it is important to ignore the negative market news and focus on the positives.  Even bullish people like myself are being deterred stand at 1/4 loss in only a few months.  As quickly as energy companies can drop stock price wise; they can rebound just as quick and continue surging.  It is important not to sell at these prices! Oil is being shorted right now and it is only a matter of time before the market regains itself. Canadian energy companies are drop dead cheap and there are opportunities to double your money within a year if things pick up marginally.

I believe another strong crude draw is what we need. We will need a few more great draws and change of tone regarding glut to deficits to regain momentum. I believe this is coming. Saudi Arabia slashed American experts another 15%, this should have a profound impact on the US inventory reports, thereby, presumably effecting the WTI oil price as the market focuses mostly strictly on US data. Of course it would be nice to see a drop in rig count on Friday too, but shouldn’t have much impact either way.

Geopoltical happenings:

* Keep yours eyes on Syria this week, as the US backed Kurdish fighters prepare to overtake Raqqa, the ISIS capital (and capital of the so-called caliphate.)  This could get really ugly, especially if the US physically intervenes with airstrikes.  The government of Turkey is very uncomfortable and hostile to US forces supplying the Kurds with weapons and have even been known to back the Islamic State terrorists fighting the Kurds near the Syrian-Turkish border. This is a conflict that could easily spread by proxy into Turkey and also Iraq.

Link: https://www.bloomberg.com/politics/articles/2017-06-04/turkey-says-u-s-operation-to-drive-is-from-raqqa-has-begun

* Another large scale terrorist attack in Britain claimed by the Islamic State.  Although in Britain, the continued “ISIS” attacks have the potential to force the US or Britain to send a show of force.  Any show of force or aerial assault on an “ISIS” base in North Africa or the Mideast will have a profound immediate impact on oil prices. I believe Russia will deter a US invasion of Syria but the relationship between Trump & Putin seems to be of a mutual interest regarding common enemies at this point. It is too early to determine the true status of US/Russia affairs.

* Iranian-Saudi Arabia rhetoric. There have been escalating rhetoric between Iran and Saudi Arabia.  Iran’s President Hassan Rouhani has become more outspoken regarding the ballistic missile program, going so far to say that Iran does not need permission to test their missiles. Trump’s administration is stacked with “old school” US generals who despise the Ayatollah regime for the 1979 US barrack bombings in Lebanon which was linked to a Khomeini backed guerrilla group.

From an investor viewpoint, if Iran does test their ballistic missiles to the ire of the USA, it would be tantamount to winning the lottery. It was Iran that was responsible for $140+ oil when they played war games in the Hormuz strait. Of course, that was under much more extreme President Mahmoud Ahmadinejad and not the self dubbed moderate, Rouhani. Quite frankly, with the war in Yemen which is a proxy war between Iran & Saudi Arabia, potential sectarian chaos in almost every single Islamic country, the reality of this coming true is not that far-fetched.

Waiting for the catalyst to return to 2016 52-week highs

June 1, 2017
by Christopher Kanaan

THE BEST OPPORTUNITIES IF WILLING TO ASSUME SOME RISK

So I have been saying the catalyst is coming since February; I won’t deny it, I have been wrong in some investments placed in the early months of the new year and now down substantially (25%), but I am more confident and certain then ever that the catalyst for skyrocketing oil prices is coming.  All the negative talk has driven the energy securities to new 52w lows and for reasons that can’t be substantiated, mostly from short trading and hedging. This is a prime time to buy for potentially short and lucrative gains. Of course, any wise man can tell you to also prepare yourself to be willing to hold out as a long or be willing to lose some money if things do not go your way.

WORST IS BEHIND US

Despite all the beatings, the anti-energy rhetoric, the talk of oversupply, two years of complete drought pricing which resulted in the bankruptcies of hundreds of companies, the lingering threat of Donald Trump’s border (BAT) tax & of course the infamous Trudeau carbon tax, we have been doing pretty good. Even Q1 results for most Canadian producers and service companies were positive.  The energy sector has picked up substantially since last year and oil prices remain stable. Overall, despite a poor political climate in Canada, things persevered thru the worst of times and only better lies ahead.

Personally, I have my eyes glued on some pressing issues that can move the oil prices upwards dramatically at any given point.  Right now however, I still think Texas is in the stage of instilling fear into the hearts of OPEC members to ensure they do not ever consider messing with Texas (crashing the market) again. Texas is certainly winning the battle at this point, though I still do not believe that Texas or American producers want oil at these levels long-term.

Potential factors to watch for:

1)  US inventory draws (every Tues. the API at 16:30 & Wed. EIA data @ 08:30) These inventory draws will bolster investor confidence that OPEC cuts are working; OPEC cuts last year resulted in many Canadian energy securities advacing 100% in a short period of time. I’m looking for a repeat to at minimum, 52week highs of 2016.

2)  Supply and demand factors: the US IEA is suggesting that supply has finally caught up with demand and demand is going to soon overtake supply, quite the nay-saying to those who suggest that the world is flooded with an unlimited supply of oil and the industry as a whole is under an EV (electric vehicle) siege. FALSE. The world demand is growing substantially, peak oil has yet to peak. Lack of development of new plays during the crashed years will see oil skyrocket to new highs, potentially in tandem with a shortage, geoconflict at the same time.

3)  Geopolitical conflicts already moving:  Venezuela at the cusp of collapse and most speculations suggests this alone could raise oil at least 5%;  Libyan ISIS attacks on army which have intensified & attacks on pipelines; Iran threatening to test fire ballistic missiles (war games in the Hormuz strait by the Iranian Revolutionary Guards resulted in oil surpassing $140 a barrel previously); sectarian conflict/rhetoric between Saudi Arabia and Iran is something huge and if it occurs, could result in unprecedented high oil prices.

4)  US government arming Kurdish fighters: While what may seem trivial in relation to the oil markets, do not underestimate the power of sectarian and ethnic conflict. The Kurds make up a substantial part of the oil producing region of Iraq and Turkey has aggressively pursued PKK fighters in the past over international borders. The Turkish-Kurdish-USA conflict is a proxy war that involves multiple countries, including Iraq. With a firebrand leader like Erdogan who is rumoured to support ISIS and Sunni radicalism, the conflict could spread much quicker then one might think.

CONTINUED STRONG CRUDE DRAWS FROM US INVENTORY

So today we had the highest crude draw according to the API since Sept. 2016; finally, wonderful news.  Almost negative (-) 9 million barrels down.  Hoping the US EIA confirms data tomorrow, or even better as they often do, gives us even BETTER news. It is Memorial Day weekend so the chances of an extreme drop and usage of oil is very likely.

One thing is for sure though, the market is waiting for good news and inventory draws are the most likely catalyst should we return to our 2016 52 week highs.  Let’s wait and see what Saudi Arabia & Russia do in the immediate or short term after claiming that they will do “whatever it takes” to balance the market as they see fit, their economies greatly depend on it.