First up Oil
Demand for transportation fuels (gasoline, distillates, and jet fuel) was down 11% during the Thanksgiving holiday
compared to the holiday week a year earlier.
- Jet fuel, however, was down by nearly half, or a decline of about 0.9 mb/d.
- There were about 107,000 flights during the week of Thanksgiving, down about 45% from 2019 levels.
Market Movers
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ConocoPhillips (NYSE: COP) announced a significant oil discovery in the Norwegian Sea.
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Diamondback Energy (NASDAQ: FANG) announced a double deal to buy two rivals for a combined $3.2 billion. It will purchase
QEP Resources (NYSE: QEP) and also Guidon Operating LLC. Enverus analyst said it is “a realization among small producers how difficult it is to deliver on returns expectations.”
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Royal Dutch Shell (NYSE: RDS.A) sold a 26.25% stake in Queensland Curtis LNG for $2.5 billion.
Tuesday December 22, 2020
Oil sentiment turned negative as near-term problems with demand have finally moved to the front burner after weeks of increasingly bullish sentiment. Dozens of countries cut off travel to the UK over fears of a coronavirus mutation. Lockdowns have also grown tighter in multiple places in December. “The nightmare before Christmas scenario has set in, with a combination of the ‘mutant virus’ compounded by Brexit angst,”
said Stephen Innes, chief market strategist at Axi.
Goldman sees $65 oil. Despite the current challenges, Goldman is
bullish on oil, expecting Brent to average $65 a barrel next year.
Congress’ Covid stimulus includes energy provisions. The $900 Covid-19 stimulus, combined with the omnibus spending bill, contained an array of energy-related provisions. The bill authorized $35 billion on a variety of renewable technologies over the next five years, and it extended tax credits. The U.S. Chamber of Commerce called it the most significant energy bill since 2007. The legislation also included a phase out of hydrofluorocarbons (HFCs), a highly potent greenhouse gas found in refrigerants. With little fanfare, the U.S. legislated the most significant action on climate change in years.
Russia backs another 500,000 bpd increase. Despite renewed fears about oil demand due to the new coronavirus strain, the leader of the non-OPEC group in the OPEC+ pact, Russia, is still in
favor of another 500,000 bpd increase in the alliance’s oil production from February.
Trans Mountain Expansion work temporarily halted. The long-distance Trans Mountain Expansion pipeline project, which would add a twin line to carry oil from Alberta to Canada’s Pacific Coast, has run into some trouble in recent weeks. Several
safety mishaps, including the death of a worker, have forced the company to suspend work for the rest of the year.
Contractor at Line 3 construction dies. Enbridge (NYSE: ENB) confirmed that a contractor working on Line 3 construction in Minnesota
died in an accident on Friday.
Cushing inventories declining. Oil inventories at the Cushing hub
declined to around 60 million barrels recently, heading towards normal levels.
Shell announced a $4.5 billion write-down. Royal Dutch Shell (NYSE: RDS.A) signaled that it would report its third consecutive
loss in the fourth quarter, and that it would take a $4.5 billion write-down, much of which was related to its Appomattox project in the Gulf of Mexico.
Northeast states unveil cap-and-invest for cars. Northeast and mid-Atlantic states unveiled the
Transportation & Climate Initiative, a coalition of states that cap emissions on the transportation sector and use the proceeds to invest in a variety of programs. The program is modeled after the Regional Greenhouse Gas Initiative (RGGI), which has been in place for years and caps emissions on major polluters. However, several states said they wouldn’t sign on for now.
Norwegian court opens up Arctic to more drilling. Norway’s top court
dismissed a lawsuit from climate activists to halt Arctic oil exploration.
Saudi Arabia keeps oil flowing. The massive 5-mb/d East-West pipeline that carries Saudi oil to the Red Sea has been undergoing repairs since an attack in 2019. But oil continues to flow through a backup pipeline system. S&P Global Platts takes a
look at Saudi oil infrastructure.
U.S. shale’s horrible year; pain is not over. U.S. shale will start 2021 producing about 7.5 mb/d, down 20% from the start of 2020. As demand begins to recover, OPEC+ will add supply back onto the market,
raising questions about how much room there is for shale to recover. IHS Markit estimates that shale capex will total $54 billion in 2021, down by half compared to 2019, and up only slightly from 2020 levels. Also, some analysts say production could fall by another 1 mb/d next year.
Russia’s oil minister warns Biden. Joe Biden’s presidency will hopefully not
interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said this week. “We can see that the new U.S. administration is making statements contradictory to the country’s policy from the last four years,” Novak said. “We hope that the changes to the policy of the U.S. administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets.”
Iran woos Russian oil companies. Iran has
stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said on Monday.
Next up: Santa Claus
It was Yale Hirsch who discovered and named the now popular “Santa Claus Rally” back in 1972. The way he explained it was,
"If Santa Claus should fail to call,
bears may come to Broad and Wall."
His point was, and for us remains, that if Santa doesn’t show, that historically precedes a period of weakness for stocks. (If you’ve never been, the New York Stock Exchange is located on the corner of Broad St. and Wall St.)
To be clear, the Santa Claus Rally is not a December thing. The “SCR” period represents the last 5 trading days of the year and the first 2 of the following year. This 7 day period has returned an average of 1.3% for the S&P500 since 1969, and an amazing 1.7% average gain since 1928. And while that’s fine and dandy, when this regularly scheduled rally does NOT occur, that’s when we want to pay attention. Because this no-show normally precedes a flat or down year for stocks.
According to the Stock Traders Almanac, Santa failed to show 6 times since 1994. In other words, on only 6 occasions did the market not rally during this 7-day period. Of those, we saw 3 flat years (’94, ’04 & ’15), 2 very nasty bear markets (’00 & ’08) and a mild bear that didn’t end until February of 2016. Needless to say, they weren’t good times for shareholders. |
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You can see the whole list here directly from the Almanac on the below.
This year, the clock starts on Thursday December 24th and doesn’t end until Tuesday January 5th. Because of the way the weekends and holidays line up, this year’s SCR Period is going to last longer than others.
Historically, stocks during this 7-day period do MUCH better than all the other 7-day periods throughout the year. According to Oppenheimer, since 1928, the S&P500 is up 78% of the time, averaging a 1.7% return. This is compared to all other 7-day periods up only 57% of the time, and averaging a return of just 0.2%. |
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The focus here, however, is If Santa Fails to Call. According to that same Oppenheimer study, 6 months into the new year the S&P500 is up on average of 5.3% when Santa shows up (if stocks rally during this 7-day period). However, when Santa doesn’t show, the S&P 500 is down an average of -0.3%.
I hope this sheds some light on what exactly it means and why we should care.
Forget all the stuff you hear about it. This is what’s important.
Shoutout to Yale & Jeff Hirsch for being so consistent with providing this data for so many years.
We’re standing on the shoulders of giants, and Yale is certainly one of those!
jog on
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