Category: Energy

Energy Fuels Now Debt-Free; Unique in Uranium Sector

 

LAKEWOOD, Colo., Oct. 6, 2020 /CNW/ – Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) (“Energy Fuels” or the “Company”), the leading uranium producer in the United States, is pleased to announce that today the Company became debt-free, following the retirement of its remaining Cdn$10,430,000 of floating rate convertible unsecured subordinated debentures (the “Debentures“). As of today, no Debentures remain outstanding, and they have ceased to be listed on the Toronto Stock Exchange. Further, the Company currently has no other remaining short- or long-term debt.

“While many uranium and other natural resource companies have significant debt burdens, Energy Fuels is proud to announce that today we became debt free,” stated Mark S. Chalmers, President and CEO of Energy Fuels.

“Being debt-free distinguishes Energy Fuels not only from many of our peers in the uranium and natural resource sectors, but also from many public companies in general. Having no debt reduces costs and allows Energy Fuels to better weather market volatility. Coupled with our strong working capital position, this also provides us with a ‘clean slate’ from which to increase uranium production when warranted and to launch the exciting rare earth element initiative we are pursuing.

“We have a number of opportunities in front of us right now, any one of which could result in significant cash flows for the Company. Critical minerals, including uranium, rare earth elements, and vanadium, are front-and-center in the U.S. right now, including bipartisan support in the U.S. government. We are continuing to work with our allies in the Administration and Congress to create a strategic U.S. uranium reserve to enhance national security and energy security. As the leading uranium miner in the U.S., with more production facilities, capacity, expertise and in-ground resources than any other U.S. uranium producer, we expect to be one of the prime beneficiaries of any U.S. government support.

“We were also pleased that the U.S. Department of Commerce was recently able to reduce uranium and nuclear fuel imports into the U.S. from Russia over the long-term, thereby eliminating the specter of more state-owned uranium imports entering the U.S. President Trump’s Executive Orders on critical minerals last week may be an important step toward the U.S. government providing tangible support and/or funding to producers and processors of critical minerals, including the uranium and vanadium we currently produce, and the rare earth elements we hope to produce in the future. And of course, global uranium markets, where spot prices are up over 20% this year, appear poised to continue their bounce-back, due to significant global production cutbacks and the fact that current spot and term pricing cannot sustain new or existing primary supply. Energy Fuels has created a number of significant, potentially ‘game changing,’ catalysts while also maintaining a strong working capital position and eliminating debt. We look forward to continuing to provide updates in the coming weeks and months on several of these initiatives.”

About Energy Fuels: Energy Fuels is the leading U.S.-based uranium mining company, supplying U3O8 to major nuclear utilities. The Company also produces vanadium from certain of its projects, as market conditions warrant, and is evaluating the potential to recover rare earth elements at its White Mesa Mill. Its corporate offices are near Denver, Colorado, and all of its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers – the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, and has the ability to produce vanadium when market conditions warrant. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S. and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU,” and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

Cautionary Note Regarding Forward-Looking Statements: This news release contains certain “Forward-Looking Information” and “Forward-Looking Statements” within the meaning of applicable United States and Canadian securities legislation, which may include, but are not limited to, statements with respect to: any expectation that the Company will maintain its position as the leading uranium producer in the United States; any expectation that being debt free will allow the Company to better weather market volatility, or allow the Company to increase uranium production when warranted or launch its rare earth element initiative; any expectation that the Company has a number of opportunities or catalysts in front of it which could result in significant cash flows for the Company; any expectation that the Administration and Congress may create a strategic U.S. uranium reserve, or that the Company may be one of the prime beneficiaries of any U.S. government support; any expectation that the recent actions of the U.S. Department of Commerce may reduce uranium and nuclear fuel imports into the U.S. from Russia over the long-term and eliminate the specter of more state-owned uranium imports entering the U.S.; any expectation that President Trump’s recent Executive Orders on critical minerals may be an important step toward the U.S. government providing tangible support and/or funding to producers and processors of critical minerals; any expectation that current spot and term uranium pricing cannot sustain new or existing primary supply; and any expectation that global uranium markets may continue their bounce-back. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans,” “expects,” “does not expect,” “is expected,” “is likely,” “budgets,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates,” “does not anticipate,” or “believes,” or variations of such words and phrases, or state that certain actions, events or results “may,” “could,” “would,” “might” or “will be taken,” “occur,” “be achieved” or “have the potential to.” All statements herein, other than statements of historical fact, are considered to be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance of or achievements of the Company to be materially different from any future results, performance, or achievements, express or implied, by the forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include risks associated with: any expectation that the Company will maintain its position as the leading uranium producer in the United States; any expectation that being debt free will allow the Company to better weather market volatility, or allow the Company to increase uranium production when warranted or launch its rare earth element initiative; any expectation that the Company has a number of opportunities or catalysts in front of it which could result in significant cash flows for the Company; any expectation that the Administration and Congress may create a strategic U.S. uranium reserve, or that the Company may be one of the prime beneficiaries of any U.S. government support; any expectation that the recent actions of the U.S. Department of Commerce may reduce uranium and nuclear fuel imports into the U.S. from Russia over the long-term and eliminate the specter of more state-owned uranium imports entering the U.S.; any expectation that President Trump’s recent Executive Orders on critical minerals may be an important step toward the U.S. government providing tangible support and/or funding to producers and processors of critical minerals; any expectation that current spot and term uranium pricing cannot sustain new or existing primary supply; any expectation that global uranium markets may continue their bounce-back; and the other factors described under the caption “Risk Factors” in the Company’s most recently filed Annual Report on Form 10-K, which is available for review on EDGAR at www.sec.gov/edgar.shtml, on SEDAR at www.sedar.com, and on the Company’s website at www.energyfuels.com. Forward-looking statements contained herein are made as of the date of this news release, and the Company disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or as a result of changes in management’s estimates or opinions, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements. The Company assumes no obligation to update the information in this communication, except as otherwise required by law.

SOURCE Energy Fuels Inc.

For further information: Energy Fuels Inc., Curtis Moore – VP – Marketing & Corporate Development, (303) 974-2140 or Toll free: (888) 864-2125, investorinfo@energyfuels.com,
www.energyfuels.com

Thursday, October 2, 2020

Energy Industry Report

Exploration and Production: 2020-3Q Review and Outlook

Michael Heim, CFA, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

• Oil prices rebounded faster than expected but have stalled out at $40/BBL. The dismal days of the second quarter and the crash in oil prices are behind us. Still, few people in the energy industry are rejoicing about a return in oil prices to the $40 level. At current levels, thoughts have shifted from trying to survive to making sure operations are cash flow positive.
• Natural gas prices rose sharply despite a rise in inventories. Normally, the summer months are quiet for natural gas prices given the seasonal nature of gas demand. Not this year. Surprisingly, the rise in natural gas prices comes despite an increase in gas inventories. Rising gas prices most likely reflect early predictions for a cold winter for most of the country. This is especially true for the highly populated eastern half of the country.
• Energy stocks continue to fall. They have underperformed the overall index for ten consecutive quarters. Energy stocks, as measured by the XLE Energy Index, fell 20% in the second quarter compared to a 7% rise in the S&P 500 Composite Index. The September quarter marks the tenth consecutive quarter in which the XLE has underperformed the overall market. Over the last ten years, the XLE has declined 50% versus a 175% increase in the S&P Index.
• Investors should focus on low-cost producers with good balance sheets. Investors would be wise to focus energy investment on companies with little to no debt and liquidity to continue to drill. A large hedge position may provide a lifeline. Low lifting costs per barrel remain important. A supportive ownership group with a long investment timeframe is also important.

Oil Prices

The dismal days of the second quarter and the crash in oil prices are behind us. Still, few people in the energy industry are rejoicing about a return in oil prices to the $40 level. At current levels, thoughts have shifted from trying to survive to making sure operations are cash flow positive. Managements are less focused on shutting in production or getting out of drilling contracts, but they are still concerned about cutting costs and focusing on the most profitable wells. And throughout it all is a general feeling that $40 per barrel could vanish quickly if anything else negative happened. Could the global economy shut down again if COVID cases accelerate as we enter the winter heating season? Will OPEC Plus members tire of output restrictions and raise production levels? Does the shift towards electric vehicles threaten a key component of oil demand? Will domestic production cost cutting continue to drive down oil prices regardless of supply and demand changes?

 

On the other hand, domestic oil production has declined to the reduced drilling. The EIA reports that U.S. crude oil production fell 21% between March and May before gaining half the decline back. Domestic producers have clearly shown an ability to respond quickly to oil price changes and that should dampen any impact that external events might have on oil prices.

Gas Prices

Natural Gas prices followed the trend of oil prices in the spring dropping from a price near $2 per mcf at the beginning of the year to a price under $1.50 by late June. Since then, natural gas prices have started to climb. The current futures price for next month deliveries is a robust $2.47 per mcf. Normally, the summer months are quiet for natural gas prices given the seasonal nature of gas demand. Not this year. Surprisingly, the rise in natural gas prices comes despite an increase in gas inventories. The chart below shows that gas inventories are the highest they have been in the last five years for this time of year. Rising inventories reflect a bounce-back in production and a decrease in liquified natural gas exports.

Rising gas prices most likely reflect early predictions for a cold winter for most of the country. This is especially true for the highly populated eastern half of the country. La Nina forecasts call for wetter-than-normal conditions in the northern half of the country that could mean heavy snowfall. The hope is that cold weather will result in increased heating demand for natural gas and will drive down inventory levels this winter.

Energy Stocks

Energy stocks, as measured by the XLE Energy Index, fell 20% in the second quarter compared to a 7% rise in the S&P 500 Composite Index. The September quarter marks the tenth consecutive quarter in which the XLE has underperformed the overall market. Over the last ten years, the XLE has declined 50% versus a 175% increase in the S&P Index.

The cause of the underperformance is, of course, lower energy prices. The underperformance also reflects the bull market. Although energy stocks benefit from growing demand associated with strong economic conditions, they also have characteristics of defensive stocks. They generally pay a high dividend yield. In fact, several energy companies such as Exxon Mobile now offer a dividend yield above 10%.

 

Outlook

The rebound in oil prices came faster than expected but seems to have stalled out at current price levels. A higher oil price was welcome news to leveraged energy companies facing negative cash flow and an inability to meet financial obligations. At prices in the forties, companies with a low-cost basis should generate positive cash flow. That said, marginal wells will most likely not be drilled, and production growth will be difficult. Companies must work to lower costs to adjust to $40 pricing, which is beginning to feel like the new normal for the foreseeable future. However, technology gains that came from applying hydraulic fracking and horizontal drilling to nonconventional formations will be hard to come by. Improvements are still being made by adjusting fracking intervals, viscosity, etc. However, these fine-tuning improvements yield small cost reductions, not the type that lower lifting costs by $10 per barrel.

We believe investors should continue to be wary regarding energy stocks. Investors would be wise to focus energy investment on companies with little to no debt and liquidity to continue to drill. A large hedge position may provide a lifeline. Low lifting costs per barrel remain important. A supportive ownership group with a long investment timeframe is also important. That said, there are compelling values within the group now that individual stock prices have fallen. We continue to believe energy prices will eventually return to higher levels with a return to more normal economic conditions and a supply response by domestic producers. We have adjusted our long-term oil and gas price assumption to $50/bbl and $2.50/mcf respectively, although we believe it may be a year or two before we reach those levels. Our individual stock net asset values and price targets are based off of our long-term energy price assumptions.

 

GENERAL DISCLAIMERS

All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.

IMPORTANT DISCLOSURES

This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report.
The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.
Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months

ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc.

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS	% OF SECURITIES COVERED	% IB CLIENTS
Outperform: potential return is >15% above the current price	88%	41%
Market Perform: potential return is -15% to 15% of the current price	12%	5%
Underperform: potential return is >15% below the current price	0%	0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
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Boca Raton, FL 33432
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Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)
Report ID: 11365

 

Thursday, October 01, 2020

Energy Fuels (UUUU)(EFR:CA)

Executive Order Aims to Reduce Reliance on Critical Minerals from Foreign Adversaries

As of April 24, 2020, Noble Capital Markets research on Energy Fuels is published under ticker symbols (UUUU and EFR:CA). The price target is in USD and based on ticker symbol UUUU. Research reports dated prior to April 24, 2020 may not follow these guidelines and could account for a variance in the price target.

Energy Fuels is the largest uranium producer in the U.S. and holds more production capacity and uranium resources than any other U.S. producer. The Company also produces vanadium. Headquartered in Colorado, Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch ISR Facility in Wyoming, and the Alta Mesa ISR Facility in Texas. The producing White Mesa Mill is the only conventional uranium mill in the U.S. and has a licensed capacity of 8 million pounds of U3O8 per year. Nichols Ranch is in production and has a licensed capacity of 2 million pounds of U3O8 per year. Alta Mesa is currently on standby. Energy Fuels also owns several licensed and developed uranium and vanadium mines on standby and other projects in development.

Mark Reichman, Senior Research Analyst of Natural Resources, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

President Trump issues executive order. On September 30, President Trump issued an executive order that, among other things, instructs the Secretary of the Interior in consultation with other cabinet secretaries, to investigate the United States’ undue reliance on critical minerals from foreign adversaries. Within 60 days, the Secretary of the Interior is to submit a report to the President summarizing conclusions and recommending executive action, including tariffs or quotas or other import restrictions against China and/or other foreign adversaries whose economic practices represent a threat to the United States.


Declaration of a national emergency.  Recall that in 2018 the U.S. Department of the Interior identified 35 critical minerals, including uranium, the rare earth elements group and vanadium. President Trump’s recent order notes that the U.S. imports 80% of its rare earth elements directly from China. The order notes that the United States’ undue reliance on critical minerals from foreign adversaries …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Wednesday, September 30, 2020

Indonesia Energy Corp (INDO)

INDO reports 1H Financials. Drilling delayed but story still intact

Indonesia Energy Corp Ltd is an oil and gas exploration and production company focused on Indonesia. It holds two oil and gas assets through its subsidiaries in Indonesia: one producing block (the Kruh Block) and one exploration block (the Citarum Block). The Kruh Block is located to the northwest of Pendopo, Pali, South Sumatra. The Citarum Block is located to the south of Jakarta.

Michael Heim, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

INDO reported 2020-1H results of $(0.48) per share. Results were below our expectations of $(0.08) due to higher-than-expected G&A costs. We believe some of these costs to be one-time in nature and reflect cost associated with marketing following INDO’s December 2019 IPO. Revenues and production levels were in line with expectations from the company’s few existing producing wells.


Drilling plans pushed back.  The company has not begun drilling in the Kruh Block due COVID-19 issues. Previously, management said it would drill the first of six wells in Kruh in September. Management now expects to drill one well in 2020, 4 in 2021, 6 in 2022 and 7 in 2023. Although there are delays, we still believe INDO’s plans to grow the company through the drill bit remain intact …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

 

Merger Activity in the Delaware Basin Puts a Spotlight on Smaller Players

 

Over the weekend, Devon Energy (DVN) agreed to acquire WPX Energy (WPX) in a transaction that valued WPX at $4.56 per share for a total value of $2.56 billion.  Under the terms of the deal, DVN will exchange 0.5165 shares of DVN for each share of WPX. Management has identified $575 million in annual cash flow improvements and expects the merger to be immediately accretive to both earnings and cash flow. The premium paid to acquire WPX was a modest 2.7% to the WPX closing price on Friday in a transaction that could be viewed as a merger of equals. Upon completion of the merger, Devon shareholders will own approximately 57% of the combined company, and WPX shareholders will own 43%.  The deal creates one of the largest oil producers in the Permian Basin. The shares of both companies were up over 10% in trading on Monday, with several analysts speculating that other energy companies could enter the bidding war.

 

 

According to the press release, the merger would build a dominant Delaware Basin acreage position totaling 400,000 net acres and accounting for nearly 60% of the combined company’s oil production. The Delaware Basin is located in West Texas and Southern New Mexico and is part of the Permian Basin.  It features highly permeable sandstone and limestone formations that benefit from hydraulic fracking stimulation. It is a multi-pay-zone formation featuring well-known layers such as Bone Springs and Wolf Camp, together referred to as Wolf Bone.  There are many companies actively drilling in the area, including major oil companies such as ExxonMobil and large independent companies such as Occidental Petroleum, Pioneer Natural Resources, Marathon Oil, and Devon Energy.  The area also includes smaller public and private drillers such as Torchlight Energy and Texland Petroleum LP.

Drilling in the area fell sharply this summer with a drop in oil prices. The idea of a merger during a down cycle is somewhat rare. Although it has been said that mergers in the energy industry always happen, they just take a different form.  During the up times, larger public companies try to accumulate positions by buying smaller public companies or by buying land from private owners.  New companies are formed that buy the odds-and-ends of larger players, who turn their attention to other areas.  During the downtimes, leveraged companies look to sell assets or go bankrupt, handing over assets to a creditor who tries to sell them.  Underleveraged public companies and private owners can often buy properties cheaply.  Mergers of equals tend to occur most often during down cycles.  Sometimes a company with great drilling prospects but high leverage combines with a company with a solid balance sheet but limited prospects.  If the new combined company can weather the down cycle because of the merger, it will be in a good position to prosper when energy prices rise. Other times, the merger comes due to a need to reduce operating costs.  The Devon-WPX seems to be an example of the latter and may be a reflection that management believes oil prices near $40 per barrel are the new norm.

As mentioned earlier, several analysts believe other energy companies could enter the bidding war for WPX, Devon, or perhaps both companies.  Chevron, who was unsuccessful in its bid for Anadarko, ended up acquiring Noble Energy.  It appears to continue to have an interest in the Permian Basin and might be interested in making another acquisition.  Perhaps the merger will cause a wave of mergers among mid and small size energy companies to lower operating costs.  Devon and WPX are surely not alone in thinking they must lower operating costs to compete in today’s low oil price environment. Mergers do not occur in a vacuum.  When management decides it needs to merge, it will send out feelers to several players. Often spurned suitors end up turning to their second choice.  Could there be a company that missed out on acquiring WPX that has already begun conversations with other companies?

 

Suggested Reading:

Dividends and the Appeal of Energy Stocks

Drilling In Unexploited Areas Brings Debate

Financial Markets Lifted Household Wealth to Record Levels

 

Enjoy Premium Channelchek Content at No Cost

 

Each event in our popular Virtual Road Shows Series has maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Sources:

https://seekingalpha.com/news/3617564-devon-energy-buys-wpx-energy-in-all-stock-deal, Carl Surran, Seeking Alpha, September 28, 2020

https://www.dallasnews.com/business/energy/2020/08/08/drilling-drops-to-15-year-low-in-permian-basin-and-other-us-oil-patches/, The Dallas Morning News, August 8, 2020

https://www.houstonchronicle.com/business/article/Drilling-Down-Independents-keep-Permian-Basin-15158660.php, Sergio Chapa, Houston Chronicle, March 30, 2020

https://www.hartenergy.com/exclusives/permian-operators-delivering-strong-production-182945, Ariana Hurtado, Hart Energy, October 17, 2019

https://www.themiddlemarket.com/news/m-a-wrap-devon-wpx-cleveland-cliffs-clearlake-ta-ivanti-bain-capital, Demitri Diakantonis & Mary Kathleen Flynn, Mergers & Acquisitions, September 28, 2020

https://www.themiddlemarket.com/articles/devon-acquires-wpx-as-permian-investors-push-for-m-a, Mergers & Acquisitions, September 28, 2020

 

Hydroelectricity is Losing its Status as the King of Renewable Energy

 

Hydroelectricity has long been the dominant renewable energy source in the world. In total, 1,292 gigawatts of capacity have been installed in the world, an amount larger than the total generating capacity of the United States. The Brookings Institute reports that 35 countries in the world receive more than 50% of their electricity from hydropower. The chart below shows that hydroelectricity represented approximately 75% of global renewable energy.

 

 

In recent years, solar and wind energy has become more affordable, so much so that almost all new proposed renewable generation is solar or wind. The second chart shows that solar and wind represent 79% of proposed generation in the United States in 2020. Other renewable energy such as hydro, biofuel, wave and tidal, and geothermal represent less than 1%.

 

 

So how did hydroelectricity lose its status as the king of renewable energy? And, more importantly, does hydroelctricity still have a role to play in a rapidly changing generation environment?

 

The Case for Hydroelectricity

• Large generation plants are capital intensive but the investment has already been made. Hydro power plants are expensive to build. The U.S. Energy Information Administration in 2016 estimated that Hydro costs $5,312 per kilowatt, more than double the cost of solar and five times that of natural gas. However, once built, operating costs are low. The average hydro power plant production expense is half that of a nuclear power plant and only 25% of that of a natural gas turbine. It would not make sense to shut down hydro generators, at least not for economic reasons. Existing plants will continue to provide inexpensive power for many more decades.
• Smaller hydro projects may still make sense. In recent years, engineers have begun to look at adding turbines to existing dam structures that do not generate electricity. These include dams built to create lakes for recreation or flood control. These turbines would be smaller in scale than those used in previous hydroelectric projects. The costs of the project would be more economical since the dams would have already been built. They will also be less disruptive to the environment than projects involving new dam construction. Giulio Boccaletti, who runs the water program at the Nature Conservancy, expects the world to double its hydropower capacity over the next twenty years.
• It is important to maintain a diversified generation portfolio. Generations plants are expensive and meant to last for decades. The economics of plants can change dramatically over the life of a plant. Currently economics favor wind and solar. However, these economics can change. Technological changes could, in theory, make hydroelectricity more efficient in the future. Therefore, maintaining a hydroelectric presence is important.
• Hydroelectricity compliments other renewable fuels. Hydroelectricity has one large advantage over other renewable fuels. It provides a steady stream of power regardless of day-to-day changes in weather conditions. Solar power requires sunshine and wind power requires wind. Those conditions may not match up with times of peak power demand. Hydropower runs steadily night or day, in good weather or bad. It can provide a steady based of power until advances are made to allow power to be stored. In fact, plants can even control the amount of power generated by regulating the flow of water through the system

 

The Case Against Hydroelectricity

• Hydroelectricity disrupts animal migration patterns. Dams interfere with animal migration patterns. Expensive fish ladders can only partially mitigate the interference of fish migration patterns. In addition, dams create reservoirs of water that are more stagnant than normal river water. As a result, the reservoir will have higher amounts of sediment and nutrients that cultivate algae and crowd out other river animal and plant-life.
• Hydroelectricity disrupts water oxygen levels. Studies have shown that dams can deprive water of oxygen levels that leave oxygen-free dead zones that can’t support fish and plant life deeper than a few feet below the surface. New turbines are being built to address oxygen levels in water but would be expensive to replace.
• Risk of damage and flooding. Dams are frequently located upstream from major population centers. Although the risk of failure is low, there have been almost 50 incidents of major dam failure since the modern era of hydropower.
• Hydropower depends on seasonal weather conditions. Although immune from daily weather patterns, hydroelectric power is somewhat dependent upon rainfall and snow buildup. Electric pricing in the Northwest can fluctuate from year to year depending on the winter’s snowpack making it difficult for manufacturing companies to make investment decisions.

 

Conclusions

Existing hydroelectric power plants will continue to run and provide reliable, cheap electricity for the foreseeable future. New large hydro projects are unlikely to be built in the United States due to environmental and economic reasons. Eventually, hydro’s reign as the king of renewable fuels may come to an end.

 

Don’t Miss This Free Event Today, September 23rd:

 

Sources:

https://www.ge.com/news/reports/breath-of-life-these-water-turbines-help-revive-dead-zones-in-rivers, Brendan Coffey, October 16, 2019

https://www.ucsusa.org/resources/environmental-impacts-hydroelectric-power, Union of Concerned Scientists, March 5, 2013

https://time.com/3978215/hydropower-us-growth/, Justin Worland, Time, July 31, 2015

http://zebu.uoregon.edu/1998/ph162/l14.html,

https://www.brookings.edu/blog/future-development/2019/05/01/managing-financial-risks-from-hydropower/, Luciano Canale, Gazmend Daci, Hilda Shijaku, and Christoph Ungerer, Brooking Institute, MaY 1, 2009

http://www.wvic.com/Content/Facts_About_Hydropower.cfm, Wisconsin Valley Improvement Company

Tuesday, September 22, 2020

Energy Fuels (UUUU)(EFR:CA)

UUUU to Participate in Government Funded Rare Earths Initiative

As of April 24, 2020, Noble Capital Markets research on Energy Fuels is published under ticker symbols (UUUU and EFR:CA). The price target is in USD and based on ticker symbol UUUU. Research reports dated prior to April 24, 2020 may not follow these guidelines and could account for a variance in the price target.

Energy Fuels is the largest uranium producer in the U.S. and holds more production capacity and uranium resources than any other U.S. producer. The Company also produces vanadium. Headquartered in Colorado, Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch ISR Facility in Wyoming, and the Alta Mesa ISR Facility in Texas. The producing White Mesa Mill is the only conventional uranium mill in the U.S. and has a licensed capacity of 8 million pounds of U3O8 per year. Nichols Ranch is in production and has a licensed capacity of 2 million pounds of U3O8 per year. Alta Mesa is currently on standby. Energy Fuels also owns several licensed and developed uranium and vanadium mines on standby and other projects in development.

Mark Reichman, Senior Research Analyst of Natural Resources, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Evaluating rare earth oxides from coal-based resources. Energy Fuels is expected to receive a grant, for which it applied in June 2020, from the U.S. Department of Energy’s Office of Fossil Energy and the National Energy Technology Laboratory to collaborate with Pennsylvania State University to evaluate and develop a conceptual design to commercially produce mixed rare earth oxides from coal-based resources. Depending on the outcome, the Department of Energy has an option to award a contract funding the development of a feasibility study.


Advancing the company’s rare earth strategy.  In our view, the initiative offers an exceptional opportunity for Energy Fuels to advance its rare earth strategy and, if successful, the potential for future collaboration with the U.S. government, including other agencies such as the Department of Defense. Additionally, producing rare earth oxides from coal-based resources would expand the available …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Energy Fuels & Team from Penn State University Selected by U.S. Department of Energy to Develop Design for the Production of Rare Earth Elements from Coal-Based Resources

 

LAKEWOOD, Colo., Sept. 21, 2020 /CNW/ – Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) (“Energy Fuels” or the “Company”) is pleased to announce that it has been advised by the U.S. Department of Energy (“DOE”) Office of Fossil Energy (“FE”) and the National Energy Technology Laboratory (“NETL”) of their intent to award a contract to Energy Fuels, working with a team from Penn State, to evaluate and develop a conceptual design to allow for the commercial production of mixed rare earth oxides (“REO”) from coal-based resources in an environmentally benign fashion. Furthermore, the DOE has the option to award Energy Fuels a contract for the completion of a feasibility study on this initiative.

The DOE has already demonstrated the technical feasibility of extracting rare earth elements (“REE”) from coal and coal-based resources, including coal refuse, over/under burden materials, power generation ash and the like. The DOE wishes to accelerate the advancement of commercially viable technologies to produce rare earth elements from these coal-based resources. Energy Fuels applied for this grant in June 2020, as REEs contained in these coal-based resources are similar to the REEs contained in other materials the Company is currently evaluating in its REE program.

The first phase of DOE funding will allow Energy Fuels and the team from Penn State to complete a detailed conceptual design and flowsheet for the potential commercial operation of a facility that produces REOs from coal-based resources. Following this phase, the DOE will conduct a merit evaluation and determine whether to award the funding for the development of a feasibility study.

Mark S. Chalmers, President and CEO of Energy Fuels stated: “We are excited to have the opportunity to work with the DOE office of Fossil Energy, the National Energy Technology Laboratory, and Penn State on this important rare earth initiative. Energy Fuels has been carrying out substantial work over the past year to explore the potential for implementing a commercial rare earth recovery and processing program at our White Mesa Mill. This initiative to produce REOs from coal-based resources is complementary to our ongoing efforts and will potentially broaden the sources of REE feedstock available to us in the future. We also hope this project opens the door for us to work with the the DOE and other agencies on future rare earth initiatives.

“Rare earths are used in a host of advanced and everyday technologies, including cell phones, computers, renewable energy generation, batteries, automobiles, and military applications. However, the U.S. does not currently have a fully integrated rare earth supply chain. Therefore, the government has made it a priority to assist in the development of domestic sources of rare earth production. With this award, we are excited to play a role in this effort, while also pursuing our other complementary rare earth initiatives.”

 

About Energy Fuels: Energy Fuels is a leading US-based uranium mining company, supplying U3O8 to major nuclear utilities. The Company also produces vanadium from certain of its projects, as market conditions warrant, and is evaluating the potential to implement a commercial rare earth recovery and processing program at its White Mesa Mill. Its corporate offices are near Denver, Colorado, and all of its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers, the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, and has the ability to produce vanadium when market conditions warrant. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels also has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S., and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU”, and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

 

Cautionary Notes: This news release contains certain “Forward Looking Information” and “Forward Looking Statements” within the meaning of applicable United States and Canadian securities legislation, which may include, but is not limited to, statements with respect to: any expectation that DOE will in fact award a contract to Energy Fuels to evaluate and develop a conceptual design to allow for the commercial production of mixed REOs from coal-based resources, as advised by DOE; any expectation that DOE may award Energy Fuels a contract for the completion of a feasibility study on this initiative; any expectation that this initiative may be complementary to Energy Fuels’ ongoing efforts or will potentially broaden the sources of REO feedstock available to Energy Fuels in the future; any expectation that this project may open the door for Energy Fuels to work with the DOE and other agencies on future rare earth initiatives, or that Energy Fuels may play a substantial role in the U.S. government’s priority to assist in the development of domestic sources of rare earth production; and any expectation regarding the ability of Energy Fuels to implement a commercial rare earth recovery and processing program. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans,” “expects,” “does not expect,” “is expected,” “is likely,” “budgets,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates,” “does not anticipate,” or “believes,” or variations of such words and phrases, or state that certain actions, events or results “may,” “could,” “would,” “might” or “will be taken,” “occur,” “be achieved” or “have the potential to.” All statements, other than statements of historical fact, herein are considered to be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements express or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include risks associated with: any expectation that DOE will in fact award a contract to Energy Fuels to evaluate and develop a conceptual design to allow for the commercial production of mixed REOs from coal-based resources, as advised by DOE; any expectation that DOE may award Energy Fuels a contract for the completion of a feasibility study on this initiative; any expectation that this initiative may be complementary to Energy Fuels’ ongoing efforts or will potentially broaden the sources of REO feedstock available to Energy Fuels in the future; any expectation that this project may open the door for Energy Fuels to work with the DOE and other agencies on future rare earth initiatives, or that Energy Fuels may play a substantial role in the U.S. government’s priority to assist in the development of domestic sources of rare earth production; any expectation regarding the ability of Energy Fuels to implement a commercial rare earth recovery and processing program; and the other factors described under the caption “Risk Factors” in the Company’s most recently filed Annual Report on Form 10-K, which is available for review on EDGAR at www.sec.gov/edgar.shtml, on SEDAR at www.sedar.com, and on the Company’s website at www.energyfuels.com. Forward-looking statements contained herein are made as of the date of this news release, and the Company disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management’s estimates or opinions should change, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements. The Company assumes no obligation to update the information in this communication, except as otherwise required by law.

SOURCE Energy Fuels Inc.

For further information: Energy Fuels Inc., Curtis Moore – VP – Marketing & Corporate Development, (303) 974-2140 or Toll free: (888) 864-2125, investorinfo@energyfuels.com, www.energyfuels.com

 

Dividends and the Appeal of Energy Stocks

 

Energy stocks have had a tough 2020.  The Energy Select Sector SPDR (XLE) is down 46% in 2020 versus a 5% increase in the S&P 500 Composite Index.  The decline has meant that many energy stocks now offer dividend yields above 5%, an attractive rate compared to low bond yields.  Energy stocks have always been a volatile group subject to the cyclicality associated with energy price booms and busts.  Clearly, we are in the middle of a bust cycle with West Texas Intermediate (WTI) oil prices having fallen 40% year to date.  The cure to a bust cycle comes when producers stop drilling so that supply and demand realign, and energy prices rise.  For energy companies able to withstand short-term cash flow issues, management will often maintain existing dividend levels in anticipation of improving cash flow.  That seems to be the case for energy companies like Chevron and Exxon Mobil, which have maintained their dividend and currently have dividend yields of 6% and 9%, respectively.  Other energy companies such as Royal Dutch Shell and BP Amoco have decided to cut their dividend and put that capital into developing renewable assets and other non-energy investments.

The different paths taken by the major oil companies has profound implications for investors.  If the drop in energy prices is part of a normal boom/bust cycle created over drilling, high-dividend-yielding energy stocks are attractive investments.  Many of the high-yield energy companies have ample liquidity and strong balance sheets that will allow them to maintain dividend levels for many years of low energy prices. The high yield, combined with the prospect of a rising stock price associated with the end of the bust cycle, could provide investors with large total returns. If, on the other hand, lower energy prices reflect a fundamental shift in oil prices, these stocks may ultimately be forced to throw in the towel and cut the dividend.  Those companies will be behind their competitors in shifting their attention towards other investments.

 

The case for energy stocks

• Supply is responding.  Drilling in the United States, which is the largest producer of oil, has screeched to a halt.  Baker Hughes reports that there were 254 rigs drilling in the United States as of September 11, 2020.  That is down from 886 rigs from a year ago.  The Energy (EIA) reports that U.S. crude oil production is down to 10,000 barrels per day from a level of 13,000 BPD at the beginning of the year.
• Bankruptcies are increasing.  Drilling that was lost due to companies reducing capital expenditures will return if oil prices improve.  Drilling associated with companies that have declared bankruptcy will not return quickly.  Haynes and Boone report a steady increase in the number of energy company bankruptcies since 2019 in response to lower energy prices.
• Demand will respond when the pandemic passes.  Part of the loss of energy demand is associated with weak global economic conditions due to COVID – 19.  As the spread of the virus abates through the development of a vaccine, it is reasonable to believe that the demand for oil will return.
• High returns can be made in a declining
  industry.  Charles Sizemore, chief investment officer of Sizemore Capital Management, compared the industry to the tobacco industry of 20 to 30 years ago.  Tobacco stocks provided strong returns to investors even as the industry shrank as the larger players maintained their dividends and acquired smaller players.

 

The case against energy stocks

• Demand is fundamentally changing.  Unlike past energy price cycles, this bust cycle is being caused by a fundamental shift in consumer habits that do not favor oil.  The growth in renewable energy has decreased the demand for oil to power generators.  The growth in electric vehicles could represent a similar shift away from oil demand to produce gasoline.  Business airline travel and daily commuting may never be the same as the world shifts towards video conferencing and away from in-person sales.
• Supply is fundamentally changing.  The cost of producing oil has become less expensive due to technological improvements in drilling and extraction.  OPEC and its allies realize that the shale boom in the United States will not go away at oil prices above $50/BBL and has increased production even though it knows that will drive oil prices lower.  Saudi Arabia has shown a new willingness to punish its allies that do not comply with production reduction targets.

 

Conclusion

As is usually the case, the truth probably lies somewhere in the middle.  There have been fundamental changes in both the supply and demand sides of the energy equation.  At the same time, temporary, abnormal events have amplified the impact of fundamental changes on energy pricing.  We anticipate improved oil prices but do not hold out much hope for a return to the days of oil prices above $60 per BBL.

 

Suggested Content:

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American Energy Dominance Relying on Immaculate Areas?

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Gas Storage Imbalances and Higher Prices

 

Subscribe to Channelchek’s YouTube Channel

Each event in our popular Virtual Road Shows Series has a maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Source:

https://www.inquirer.com/business/dividends-yields-10-year-treasury-etf-vanguard-pimco-20200309.html, Erin Arvedlund, March 9, 2020

https://finance.yahoo.com/news/big-oil-goes-looking-career-040154761.html, Javier Blas, Bloomberg, September 14, 2020

https://money.usnews.com/investing/stock-market-news/slideshows/the-best-energy-stocks-to-buy-this-year, Ellen Chang, U.S. News, August 4, 2020

https://www.haynesboone.com/-/media/Files/Energy_Bankruptcy_Reports/Oil_Patch_Bankruptcy_Monitor, Haynes and Boone, August 31, 2020

 

Monday, September 14, 2020

Gevo, Inc. (GEVO)

Virtual Roadshow Should Highlight Improved Visibility

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Join today’s virtual roadshow with Gevo, Inc. (GEVO) @ 3:30PM EST. You can register for free at register.gotowebinar.com to hear from Pat Gruber, CEO. The interview should reinforce the recent business update that indicated that recent capital raises have reduced uncertainty and progress continues in moving forward on designing and financing the renewable fuel projects.


Current cash of ~$81 million creates near-term funding visibility.  Recent capital raises of $46 million from an equity offering and $16 million from warrant exercises have enhanced funding visibility. The added cash boost creates more visibility in funding the critical design and engineering work, including permitting, necessary to fully develop the initial three production plants to project …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

 

Excess Oil Inventory May Take Even Longer to Work Off

 

West Texas Intermediate oil prices fell 8% on Tuesday, dropping from $39 per barrel to $36.30/BBL.  Tuesday’s close was the lowest oil price close in three months.  The decline caps off a difficult ten-day period that started with oil prices entering the month of September at $42.76/BBL.  There is not a single reason for the decline but a series of announcements that point to oil supply increasing and demand rising at a slower rate than previously thought.

Inventories are rising. The American Petroleum Institute reported on Tuesday that U.S. crude stockpiles unexpectedly rose last week.  The country’s crude stockpiles rose by 3 million barrels in the week ending September 4, almost twice that expected by analysts.  The rise was the first increase in seven weeks. The higher inventories were confirmed on Thursday when the U.S. Energy Information Administration indicated that U.S. commercial crude inventories increased by 2.0 million.  Analysts had expected a 1.0 million decrease.  The EIA reports that inventories are running 14% above the trailing five-year average for this time of year.  The inventory buildup comes at an unfortunate time, with the summer driving season coming to an end.

OPEC is getting tired of production cuts.  On September 5, Saudi Arabia lowered its official selling price for October.  Remember that OPEC and allies agreed to a 9.7 million barrel per day cut to supply on May 1.  The reductions were decreased by almost 1 million bpd in June and another 1 million in August.  OPEC and allies meet on September 17 to discuss a continuation of production cuts. Saudi Arabia’s willingness to accept lower oil prices in October may be a sign that it is tiring of cutting production.  If true, the outcome of the next OPEC meeting may result in increased supply at a time when demand is becoming more uncertain.

The future of oil demand for vehicles may be coming into question. GM announced a 10-year alliance with Nikola Corp to build an electric truck. The alliance puts them in direct competition with Tesla and shows that the major car manufacturers do not plan to sit idle as Tesla attempts to gain market share.  GM is not alone among major auto manufacturers in announcing plans to develop electric vehicles.  Announcements like these may be a sign that the age of electric vehicles may be coming sooner than previously anticipated.

A global economic recovery coming from a Covid-19 vaccine may be further away. Countries in all parts of the world are reporting increased cases of Covid-19 as they prepare for an expected second wave of cases coming this fall.  On September 8, AstraZeneca announced that a vaccine study had been put on hold due to a suspected serious reaction in one of the participants.  The halt of a vaccine study is raising new questions about the ability of countries to open their economies.

China may be done restocking its inventories. China has been increasing oil imports through the summer.  The increase stopped in August, with China importing 11.23 bpd versus 12.13 bpd in July.  Warren Patterson, global head of commodities at ING, indicates that China restocked inventories and that Chinese buying appears to be absent from the market at the moment.

Oil prices turned negative in April after the market was hit by a double shot of OPEC production increases and pandemic-induced demand destruction.  Higher oil prices recovered over the summer due to OPEC production cuts and signs that economies were reopening.  Recent data seems to indicate that the optimism of the summer was misplaced.  With storage levels lower than in the spring, it’s unlikely that the market will see the oil price drop witnessed in April.  Instead, there could be a prolonged period of low prices as the market works off excess inventory slowly.

Take-Away

Not one, but a series of events, announcements, and seasonal norms caused oil prices to drop. There are a number of trends on the horizon that are also concerning in a world sitting near inventory capacity.

Suggested Reading:

Is American Energy Dominance Relying on Immaculate Areas?

More Frequent Travel Could Be the Actual Aftermath of the Pandemic

Natural Gas Storage Imbalances and Higher Prices

 

 

Sources:

https://www.cnbc.com/2020/09/08/oil-drops-to-multi-month-low-on-demand-fears.html?__twitter_impression=true&recirc=taboo, Pippa Stevens, CNBC, September 8, 2020

https://www.cnbc.com/2020/09/10/oil-markets-coronavirus-pandemic.html, Reuters, September 9, 2020

https://finance.yahoo.com/news/crude-oil-adjusting-weakening-fundamentals-115438419.html, Oke Hansen, FX Empire, September 10, 2020

https://www.marketwatch.com/story/oil-down-sharply-as-us-driving-season-comes-to-end-2020-09-08, Myra P. Saefong and William Watts, MarketWatch, September 8, 2020

https://www.foxbusiness.com/markets/oil-prices-tank-as-demand-drop-nears, Jonathan Garber, FoxBusiness, September 8, 2020

https://oilprice.com/Energy/Crude-Oil/Surprise-Crude-Build-Forces-Oil-Prices-Lower.html, Irina Slav, OilPrice.com, September 10, 2020