Stagnation In Shale

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Distorted Payroll

ADP announced that private payrolls rose 242,000 in February, which was substantially higher than economists’ consensus estimate of 205,000. The January private payroll was revised to 119,000, up from 106,000 previously reported.

Clearly, ADP cannot find the jobs that the Labor Department reported in January, which now more than ever looks grossly distorted by seasonal adjustments.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2022 hedge fund letters, conferences and more

This week we will learn if the Federal government lied to us. I am not referring to Federal Reserve Chairman Jerome Powell’s testimony before the Senate on Tuesday or House on Wednesday. No instead, I am referring to Friday’s February payroll report.

Specifically, I want to see if the January payroll report is revised substantially lower after being artificially boosted by massive seasonal adjustments and gets closer to the ADP report. I have not been the only one questioning the shocking January payroll reports, since Bain Capital also questioned the seasonal adjustments in a recent economic report.

March is a seasonally strong month, due somewhat to continued strong pension funding as well as improving spring weather. Although it is still snowing in the Mountain West where I have a home, the snowstorms are expected to be warmer this week, so it is time for “Sierra Cement” to start falling, which is wet heavy snow.

I should add that the power has been out for many mountain communities, including Mammoth Mountain, which had to delay opening last weekend, since its ski lifts had no power. It will be interesting about the blowback for the electricity outages throughout California’s mountain communities from the record snowpack.

The good news is warm weather is coming for most of the U.S. in the upcoming weeks and that typically helps boost consumer confidence and spending.

Stagnation In Shale

The Wall Street Journal on Wednesday featured an article about how crude oil production in the Permian Basin may be waning due to the fact that frackers are discovering fewer big wells. “Stagnation in Shale” is the big topic at the premier annual energy summit, CERAWeek, in Houston this week.

ConocoPhillips (NYSE:COP) CEO Ryan Lance said on a panel that “The world is going back to a world that we had in the ’70s and the ’80s.” Lance also added that OPEC would soon supply more of the world’s crude oil. The Top 10% of the most productive wells in the Permian Basin in 2022 were 15% less productive than in 2017.

Overall, the average well in the Permian Basin in 2022 produced 6% less crude oil in 2022. Chevron Corporation (NYSE:CVX) and Devon Energy Corp (NYSE:DVN) also confirmed that their well output in the Permian Basin is waning, but both companies are continuing to drill for new production.

The average new well that Devon Energy drills produces 342,000 barrels over 9 months in the first year, but in the second year, production declines to slightly more than 167,000 barrels over the same period. The drilling ban on federal land is also exasperating the shale production decline.

Fragile Imbalance

So between, the Permian Basin peaking and Russian crude oil dropping due to increasing sanctions, the world’s supply/demand imbalance remains fragile. New fields in Guyana are now becoming increasingly important to North America and Exxon Mobil Corp (NYSE: XOM)’s goal for Guyana is to produce 1.2 million barrels a day of crude oil by 2027.

Regardless, crude oil prices are expected to continue to meander higher due to peak oil production near term from the Permian Basin peaking as well as Russian production waning.

China’s customs bureau on Tuesday announced that its exports have fallen 6.8% in the first two months this year. Higher interest rates in Western countries are being blamed for falling Chinese exports. As central bankers continue to raise key interest rates higher, it is definitely impacting consumer behavior.

Interestingly, the Commerce Department announced that the U.S. trade deficit rose by 1.6% in January to $68.3 billion as imports rose 3% to $325.8 billion and exports rose 3.4% to $257.5 billion. The fact that both exports and imports are rising is very healthy.

Furthermore, Europe’s economic activity has picked up and helped to offset China’s slowing economic activity. Overall, the trade deficit data is indicative of healthy global GDP growth. Speaking of GDP growth, the Atlanta Fed is now expecting 2% annual GDP growth for the first quarter.

Coffee Beans

Over half a million Americans are currently homeless. Around half of all unsheltered homeless people in the U.S. are located in California where 67.3 percent of homeless people were listed as unsheltered at the same time. Source: Statista. See the full story here.

markets
reserve
interest rates
fed
stagnation