About Oil and Stocks
I have known oil industry expert Daniel Yergin since working for the Senate Foreign Relations Committee in the 1970s. Yergin attended our hearings on OPEC‘s quadrupling the oil price and then turned out readable versions of the revelations, forecasts, and strategies the Senators had extracted from their witnesses. My then-boss, Sen. Clifford P. Case, R-NJ, called Yergin a “terrible simplificateur.”
Dan Yergin is still at it. This week, he managed to be quoted at the top of the financial second section of the Financial Times saying: “the era of OPEC as a decisive force in the world economy is over. It is clearly a very divided organisation.”
Then he went on to say that he expects the price of oil to rebound despite increased Iranian output. “A lot of storage is filled up but we’re not at that point where there’s no place to put the oil and so I think this period will be the bottom.”
He added: “in the second half of this year or early next year you’ll see the market more in balance.” Dan is once again hedging his bets. Last week oil rose over 5%.
Sen. Case was quoting 19th century Swiss cultural historian Jacob Burckhardt’s comment on the failure of historians to properly understand how closely the Middle Ages linked to the Renaissance. Like the senator, Burckhardt was the son of a Calvinist dominie.
Energy Patch News
*Veresen (FCGYF) announced that Jordan Cove Energy Project and Pacific Connector Gas Pipeline companies have submitted to the US Federal Energy Regulatory Commission a request for rehearing of FERC‘s order issued on March 11 denying their applications for authorization to construct and operate the Jordan Cove LNG terminal in Oregon.
Veresen and PCGP have made several agreements demonstrating significant commercial support for the project and to purchase of at least 3 mn tonnes/yr natural gas liquefaction capacity, representing at least 50% of the project’s initial design capacity. Moreover, PCGP recently executed natural gas transportation service precedent agreements with Macquarie Energy LLC, Avista, and JCEP, which in aggregate represent more than 75% of the rated capacity of the pipeline subject to customary conditions. Avista is a local distributor serving communities along the pipeline.The other two TSPAs should facilitate gas transport to the Jordan Cove LNG terminal.
In the request for rehearing, JCEP and Pacific Connector request that FERC consider the agreements with customers of the LNG terminal and shippers on Pacific Connector as evidence of market support for the projects. It also argues that the project’s public benefits outweigh potential adverse impacts on landowners.
Last week VSN completed talks over a second deal for its LGN plant with Japan trading house Itochu, following an earlier one with JERA, a jv of two Japanese utes.
Said Don Althoff, VSN CEO: “we continue to see an outpouring of support from project proponents at each of the local, state and national levels. Our supporters [show]continued confidence in the projects.”
FERC has 30 days to grant or deny the request for rehearing. FERC may grant rehearing solely for purposes of extending the 30 day deadline if it wants to be nasty, but I suspect the US and Canada are able to work something out.
*BP plc (BP) brass are suffering from a shareholder revolt against the pay package for CEO Bob Dudley. He is supposed to collect $19.5 mn in pay and benefits for 2015 despite BP losing a mere $6.46 bn last year. The disconnect between C-suite pay levels and results is winning more dissident votes among UK institutional investors. We voted our proxies already and note that in part because of the rotten results, not altogether Mr. Dudley’s fault given the surprise drop in oil prices, BP now yields about 8% despite the stock gaining 1.5% as the AGM fight prospects heat up. The latest dissidents, ShareSoc, said that the firms “excessively complex” remuneration scheme needs revisiting.
*As Israel attempts to grapple with its Supreme Court ruling against a government deal over offshore natural gas pricing, various moves are afoot. One is a love-feast between two embattled premiers, that of Israel and Turkey. Another is a move by Delek Group’s (DGRLY) cash-short minority US partner in Israeli Mediterranean waters, Noble Energy (NBL), to sell part of its stake in the current Tamar gasfield to be able to pay its part in developing the even larger Leviathan one, probably to Israeli institutional investors. DGRLY, which is one of them, will not be a bidder because it is also required to divest part of its stake in Tamar (which means palm-tree in Hebrew) to continue with Leviathan (which means the same thing in Hebrew as in English, from the Bible.) NBL is now rated buy by Stifel analysts but I think DGRLY is safer.
*France’s Veolia (VEOEY) has signed a deal to build a sewage facility at Ras Lattan with Qatar Engineering & Construction, whose price was not given. VEOEY.
*US crude was up 1.7% to $40.39 yesterday, perhaps because of Yergin’s remarks.Schlumberger (SLB), which helps find the stuff, is up closer to $75.50. This comes despite the impact of its takeover of Cameron International Corp which a seekingalpha.com anonymous writer says will hit SLB’s Q1 results. He or she says exploration and production will be the last to recover as oil prices rise; I would add that there always is a negative in results and capitalization right after a merger, which makes it real easy to predict stormy waters ahead. The writer, “Societe Financiers” (bad French as Societe is feminine) is certainly not Daniel Yergin who speaks good French and never writes anonymously.
*We sold Canadian Solar (CSIQ) last year at $24 and change (US) and its is now being heralded as a buy at $17.32. The idea is that other solar companies are in trouble and it is not. I pass this along with no comment but if our solar solon Max Deml agrees we may go back in.
*The combo of higher oil prices and Latin love-feasts took both Ecopetrol (EC) and Cosan (CZZ) up as well, by 2.6% and 2.9% respectively. EC is Colombian and pumps oil. CZZ is Brazilian and makes alternative energy.
Steal in Steel and Cars
*Posco (PKX) is on a roll, up by a third from what we paid. I worry that this may be no more than South Korean patriotism against a backdrop of increased nuclear threat from the north and the messy exit of Asian steel barons from production in Britain. Back during the Asian Contagion Koreans patriotically turned in their gold jewelry to help Seoul rebuild its reserves. (I added to bank Shinhan Group at $34.34 rather than PKX, a fave of Warren Buffett.)
*India’s Vedanta Resources (sold) reported Q4 and fiscal year results for Mar. 31 showing lower Q4 production of oil and gas offshore Rajasthan, covered by buying elsewhere. But VEDL in metals saw shortfalls it had to pay for at market prices, like zinc from Goa.
Japan and Other Funds
*Our Japan Small Cap funds remains in the dumps but I expect recovery soon. Michael Kurtz writes from Nomura in Hong Kong that the firm’s economists expect a rise in global interest rates soon, starting of course with our Fed. He adds:
“Our rates team believes Q2 could bring ‘a big bounce higher in Japan yields once the BoJ [central bank]and fiscal authorities provide clarity on their stimulus plans’. Last weeks US$/JPY decline below 108 presents a difficult headwind for Nikkei stocks and ‘verbal intervention’ from Finance Minister Aso, Chief Cabinet Secy Suga, and BoJ Governor Kuroda suggest that official patience on this is nearing a limit. Our FX strategists expect words to transform in FX-intervention deeds only if the US$/JPY falls below 105. The rising probability of both fiscal and monetary easing is likely to offer Japanese stocks increasing support.” He also thinks the yen will rise again.
Meanwhile currency intervention by the BoJ is allowed according to leaks all over the press yesterday.
*Adrian Ash writes from London: “Negative rates, wobbly stocks, and political risks like the UK’s Brexit vote make the case for investing in gold quite plain. We must also report a sharp jump in the level of selling by existing shareholders.
“You don’t need to suddenly believe that everything is just fine or that gold lost its value as financial insurance to take a profit or cut losses. You just need the ability to sell quickly, easily, and cheaply. “
Adrian manages the World Gold Council-linked www.bullionvault.com site which advertises with us. But his comment applies to SPDR Gold ETF, GLD, too. For US investors, it is smarter to sell physical gold held at bullion vault than the ETF, for tax reasons. The site now allows you to take delivery of 100 gram gold bars should you want. Adrian makes a specialty of distinguishing this site from boosters of gold coins charging way more for the yellow metal. Hence his skepticism about how good gold is.
With India running a jeweler’s boycott against official gold sales, the gold market is likelier to rise short-term when it stops. GLD is at $120/sh.
*Among gold stocks, Credit Suisse suggests Barrick (ABX) common on which it put a $17 target price (up from $11) with an outperform rating up from neutral. ABX.