September 11, 2024 | WTI Crude Oil BUY Signal Triggered. We Sent Out New Energy Stock BUY Ideas Yesterday

Today is remembrance day for 9/11, a clear day of infamy in US history. US political leaders (Democratic and Republican) will attend memorials at the three sites that were attacked. Good news there for bipartisan action on behalf of the nation.

Last night’s mudslinging Presidential debate was not a heartwarming showing for either candidate, but clearly VP Harris going over to shake the Donald’s hand started her winning night. ABC’s interviewers were not equal on fact checking as they showed their bias against Trump. Both kept to their new or very old talking points and their chameleon moves were condescending of the US voters. Adding to the win for VP Harris was the post debate endorsement by Taylor Swift on her Instagram account viewed by 283M followers. How many are of voting age is the issue. If even 5% are, then this posting will have given VP Harris a massive edge with younger voters.

Over the last few days WTI crude oil breached our long forecasted price target of below US$70/b. Yesterday it fell below US$66/b and we sent out an Action Alert BUY signal for crude and recommended five new ideas for SER subscribers to consider. Today’s intraday low so far is US$65.91/b. Our view had been that there were adequate supplies but that demand forecasts were too high. Yesterday OPEC’s report concurred with that view and lowered their 2024 and 2025 demand forecasts. China weakness and no growth in US consumption (the two largest energy consuming nations) has been our argument for lower crude prices. We are now at breakeven prices for many basins and we expect to see curtailment of high cost reservoirs and lower spending announcements by producers. Hedge funds who were long oil have reversed their positions and gone short. The commodity is now oversold. Not as cheap as in Q1/20 but cheap enough for a move to the bull camp. Energy stocks have been hammered and we see bargains across the board: Domestic E&P, International E&P, Energy Service etc. We added five new ideas to our Recommended List and reiterated BUYS on three names already on the list that have fallen to bargain levels. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports at https://bit.ly/2FRrp6k.

Some of the recent global economic data points to consider are:

• China’s manufacturing levels fell to a six-month low in August.
• Canada’s economy added 22K new jobs and the rate rose to 6.6% This the highest level since May 2017. This job increase fell short of forecasts.
• US Payrolls grew by 142K in August, below the consensus of up 161K jobs. The unemployment rate ticked down to 4.2% (from 4.3%). Average hourly earnings rose 0.4% making the Fed’s job tougher next week to lower the Fed Funds rate by more than 25 BP. Private sector job growth was 118K versus 74K in the prior month. However, this was below forecast of an increase of 139K new private sector jobs.
• The Fed Beige book released on September 6th showed 9 of 12 Federal Districts with flat or declining economies. More signs of a recession are developing. Declining consumer spending was highlighted in most districts.
• US Credit card charge offs hit a new high and consumer savings plunged to 3.5% (near historic lows).
• Today’s CPI came in at up 0.2% as expected, helped by lower energy costs. However core CPI rose 0.3% above the forecast of 0.2% (the same as the prior month reading). CPI year over year is now up 2.5%.

Summarizing – We surmise that the Fed is boxed in by their policy mistakes. They kept saying in 2023 that inflation was transitory and we now know this as false. They also erred by prematurely calling a pivot in December 2023.  Recession may now be here and consumers are spending less while still facing an onslaught of higher prices making household budgeting tighter. We are likely in the early stage of a consumer recession which is nearly 70% of the US economy. Not a good situation during an election year.

Market Update:  We are watching the economic data carefully as it appears that consumers are tapped out and this seems to be dragging economies around the world into recession. The offset for the US is the 6% US spending deficit and large war spending that are keeping some areas of the US, with hot economies. The military industrial complex and areas where weaponry is built are strong economic centers these days.

We see the Dow Jones Industrials falling to the 36,000 level from 40,069 today (down 667 points as I write this).

Energy stocks peaked in early April of this year as crude reached its high of US$87.67 on the mideast war potential to expand with direct fighting between Israel and Iran. Prices retreated to US$71.46/b in mid-August as no escalation occurred and global inventories grew. The war fears have evaporated as we talked about and WTI crude has fallen below US$70/b to below US$66/b which was our downside target. From here we see some backing and filling. Investors should use this weakness to add to favourite energy positions or look at our SER recommendations for new ideas for your portfolios. Please check with your investment advisors to see what is appropriate for your portfolios.

Josef Schachter September 11th, 2024

Posted In: Schachter's Eye On Energy

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