June 3, 2024

 

(ENERGY STOCKS ARE IN CONFLICT OVER GUYANA OIL ASSETS)

June3, 2024

 

Hello everyone,

 

Week Beginning June 3

The Bank of Canada and the European Central Bank are set to kick off June’s Central bank meetings on Wednesday and Thursday, respectively.  Both are anticipated to reduce their interest rates by 25 bp.  For the ECB, this adjustment would mark its first rate cut since 2016.

Investors are heading into a seasonally weak period for the markets, and while signs of inflation easing has buoyed investors, traders will still be relying on and watching macroeconomic data closely to navigate an expected choppy market.

 

The week ahead calendar

Monday, June 3

9:45 a.m. Markit PMI Manufacturing final (May)

10 a.m. Construction Spending (April)

10 a.m. ISM Manufacturing (May)

 

Tuesday, June 4

10 a.m. Durable Orders final (April)

10 a.m. Factory Orders (April)

10 a.m. JOLTS Job Openings (April)

Australia's GDP Growth Rate

Previous: 0.2%

Time: 9:30pm ET

Earnings: Hewlett Packard Enterprise, Bath & Body Works

 

Wednesday, June 5

9:45 a.m. PMI Composite final (May)

9:45 a.m. Markit PMI Services final (May)

10 a.m. ISM Services PMI (May)

Canada Interest Rate Decision

Previous: 5.0%

Time: 9:45 am ET

Earnings:  Campbell Soup, Dollar Tree

 

Thursday, June 6

8:30 a.m. Continuing Jobless Claims (05/25)

8:30 a.m. Initial Claims (06/01)

8:30 a.m. Unit Labor Costs final (Q1)

8:30 a.m. Productivity final (Q1)

8:30 a.m. Trade Balance (April)

Euro Area Interest Rate Decision

Previous: 4.5%

Time: 8:15 am ET

Earnings: J.M. Smucker Co.

 

Friday, June 7

8:30 a.m. May Jobs report

Previous: 175k

10 a.m. Wholesale Inventories final (April)

12 p.m. Fed Governor Lisa Cook gives commencement address at Girls Global Academy, University of the District of Columbia, Washington, D.C.

3 p.m. Consumer Credit (April)

 

Exxon Mobil and Chevron are in a battle over lucrative offshore oil assets in Guyana.

Exxon has outpaced Chevron this year with the oil majors gaining roughly 15% and 6%, respectively.

But the environment for Chevron may look brighter in the second half of the year if it can exercise a favourable outcome from its feud with Exxon over an offshore oil development in Guyana called the Stabroek Block.

Exxon leads that development with a 45% stake, but Chevron is seeking to get in on the action through its pending acquisition of Hess Corp, which has a 30% holding in Stabroek.

Hess shareholders approved the Chevron merger last Tuesday, but it’s still unclear when the deal will close.

Exxon has dragged Chevron and Hess before an arbitration court to defend its claims to a right of first refusal over Hess’ Guyana assets under a joint operation agreement.

Chevron came into the year facing production issues in the Permian Basin and cost overruns at its Tengiz project in Kazakhstan that frustrated investors.  Chevron has been bouncing around in a price range between $40 and $65 for most of this year.

Exxon, on the other hand, hasn’t really faced any execution issues this year.  In fact, Exxon’s performance is a reversal from the decade leading up to the Covid-19 pandemic, when the company underperformed Chevron due to its capital expenditures during a period when oil prices were low.

Since 2020, Exxon has outperformed Chevron as the company has implemented capital discipline. Additionally, investors have noted Exxon’s lead position in the lucrative offshore oil development in Guyana.

Kevin Holt, senior portfolio manager of the Invesco Energy Fund (FSTEX) believes that the Guyana development is probably the best project the oil sector has seen in 25 years with very productive wells at a relatively low cost.  Holt goes on to say that Chevron would look very attractive if the Hess deal closes due to the latter’s large stake in Guyana.  However, if Exxon prevails in the arbitration case, the merger will terminate and Hess would remain a stand-alone company, raising questions about Chevron’s next move.

It is unclear how long the arbitration will take.  There is a possibility it may drag into 2025.

Holt sees the odds in Chevron’s favour regarding the arbitration, and points to other issues at Tengiz and in the Permian as short-term bumps in the road that will be resolved.  The resolution of all the latter will see Chevron in a very good position.

The fund manager argues that both companies are inexpensive

 

QI CORNER

 

 

 

 

I found this post interesting form Jason Sen.   I have underlined the parts of the post that I have recommended to other traders and investors:

Scaling into a trade or an investment – not committing all your capital at once.

Place your stop loss when you enter the trade – takes the emotion out as you now have a defined risk, and you are sticking to a plan.

Scaling out of positions – allows you to take some profits but still let part of the position run to capture further potential profits.  In other words, you can have two take profit positions set.

I refer to the scaling in and out strategy as pyramiding in and out of a position.

Monthly May Zoom Meeting

Thank you to all those who attended the May monthly meeting on Friday afternoon/evening.

We had a great turn out – subscribers from United Kingdom, Australia and the U.S. tuned in.

A recording will be sent out shortly after the presentation has been edited.

 

 

Cheers,

Jacquie