Oil and War, but our Oil/Energy Stocks are Shooting to New Highs

Mid Day Market Report

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My last update on oil, I commented that a rebound from the $78 area was likely. Oil was over sold and inventories were falling. Crude inventories were 8 million barrels (-2% or -0.15 standard deviations) below the seasonal average on July 19. Despite this bullish news, oil barely slowed down around $78 and went below $75.

Now we have a good answer. As I have been commenting, we always have to consider intervention. We live in a day when the narrative is more important than facts or the truth. Israel carried out two strikes on Tuesday, the first killing Hezbollah senior commander Fuad Shukr and the second killing Hamas’ political leader Ismail Haniyeh.

Something like this is planned and knowing this would soon happen, it would be much better for energy prices, if this occurred when oil prices were weak. Oil rebounds from a lower price.

Iran's supreme leader Ayatollah Ali Khamenei vowing to punish Israel, as reported by the state-run Islamic Republic News Agency. Also Haniyeh’s death adds uncertainty to the potential Gaza cease-fire deal, as he was a key negotiator. Iran’s Revolutionary Guards Corps has confirmed the death of Ismail Haniyeh, the top political leader of Hamas, during an inauguration event for Iran’s new president. Haniyeh, who is based in Qatar, and an Iranian security guard were reportedly killed at their place of residence.

I have been commenting for sometime that the odds were high that this Israel/Hamas conflict could escalate into a regional war. The odds of that just went up significantly and we could soon see Iran and Lebanon attack Israel. The U.S. could than get dragged in or have an excuse to go war.

Maybe another distraction is needed because the U.S. and NATO are failing badly in Ukraine. Well over ten thousand Ukrainian troops were killed in a retreat from a recent battle. Russian forces have made significant gains in the Donbas, specifically in the region west of Avidiivka, several media outlets have reported.

Currently, Ukrainian troops are being encircled in the Pokrovsk direction, a key supply chain target. Russia has further seized the entire Novoselivka Persha settlement, after a string of tactical successes over months of the new Kharkiv offensive. As always I refer to Col. Douglas Macgregor as great unbiased war opinion.

A good comment on his youtube video summed it up: “The proxy war in Ukraine is the first time NATO has tried to pick on someone their own size and NATO is getting humiliated.”

If you don't think the media is co-ordinated to help the left (Democrats) than you may be weird according to their words.

The new narrative that every left wing shill is reciting on nearly every major news platform? Donald Trump and JD Vance are 'just plain weird', therefore conservatives are all weird.

And if you are still using google or bing as your search engine than you are still being bamboozled. I recently tried it with a search on negative news on Kamila Harris, after I read this article. Not much came up until I used DuckDuckGo which I have been using as my search engine for years now.

Here are 4 to 5 oil/energy stocks on our Selection List or Millennium Index. They have all been strong, seems the market has not bought into the recent oil price correction. We have been buying into the sector the last few years as it has been way under valued and is now paying off big time.

Comstock Resources (CRK) US$9.75, sold 2022 and 2023 at an average price of $14.34

Comstock is well-positioned to capitalize on the rising demand for natural gas. With a robust portfolio of assets in the Haynesville shale, one of the most prolific natural gas fields in North America, Comstock benefits from high-quality reserves and a strategic location near major Gulf Coast LNG export terminals. The company’s focus on operational efficiency and cost management has enabled it to maintain strong margins despite market volatility. Furthermore, Comstock’s recent strategic acquisitions have enhanced its production capabilities and reserve base, providing a solid foundation for future growth. As global energy markets seek more natural gas to transition from coal and oil, Comstock is set to benefit from higher prices and increased demand.

The stock is off some today with weak Q2 results yesterday. Very weak natural gas prices weighed heavily on the second quarter financial results. Comstock's realized gas price for the second quarter of 2024 averaged $1.65 per Mcf without hedging and $2.12 per Mcf after hedging. As a result, Comstock's natural gas and oil sales in the second quarter of 2024 decreased to $278.2 million (including realized hedging gains of $60.6 million) despite a 4% increase in production. The stock is the weakest of the 5 and although we sold much higher, I am watching for another entry point.

TC Energy Corp. (TRP) $42.58 a 2 year high

TC Energy is a leader in North American energy infrastructure, offering a diversified portfolio of natural gas pipelines, liquids pipelines, and power generation assets. Its extensive pipeline network, which spans Canada, the United States, and Mexico, ensures reliable and stable cash flows. TC Energy's ongoing expansion projects, including the Coastal GasLink pipeline, are expected to drive significant growth in the coming years. The company’s strong balance sheet and commitment to dividend growth make it an attractive option for income-focused investors. With the increasing demand for reliable energy infrastructure and a strategic focus on low-risk, regulated assets, TC Energy is well-positioned for long-term growth and stability.

Q2 results out tomorrow. Yesterday they announced a big cash infusion with an equity interest purchase agreement (Agreement) with an Indigenous-owned investment partnership for a minority equity interest of 5.34 per cent in the NGTL System and the Foothills Pipeline assets (together, Partnership Assets) for a gross purchase price of $1 billion.

Cenovus Energy (CVE) C$27.59, close to a 2 year high of $29.90

Cenovus is a top-tier integrated energy company with a strong presence in the Canadian oil sands and a growing portfolio of conventional and unconventional oil and gas assets. The company’s merger with Husky Energy has created significant synergies, enhancing its production capabilities and operational efficiencies. Cenovus's integrated business model, which includes upstream production and downstream refining, provides a natural hedge against market volatility. With a focus on reducing debt and improving shareholder returns, Cenovus is well-positioned to benefit from higher oil prices and increased global energy demand. The company’s commitment to sustainability and innovation also positions it favorably in an evolving energy landscape.

Cenovus will release Q2 results tomorrow AM and it looks like the market is expecting good numbers.

Energy Transfer (ET) US$16.30, just below 5 year highs of $16.50

Energy Transfer is a premier energy infrastructure company with a vast portfolio of natural gas, crude oil, and refined product pipelines, as well as storage and terminal assets. The company's extensive network across major U.S. shale basins ensures robust cash flows and growth opportunities. Energy Transfer's recent strategic acquisitions and joint ventures have expanded its footprint and enhanced its service capabilities. With a strong focus on financial discipline and operational excellence, Energy Transfer offers attractive distribution yields and potential for capital appreciation. As the U.S. continues to expand its energy export capacity, Energy Transfer is well-positioned to capitalize on growing global energy demand.

Last week ET announced an increase in its quarterly cash distribution to $0.32 per Energy Transfer common unit ($1.28 on an annualized basis) for the second quarter ended June 30, 2024. A very attractive yield of 8.1%, one of the main reasons we own the stock.

Shell PLC (SHEL) US$73.16, just below 9 year highs of $74.60

Shell PLC is one of the world’s leading energy companies, with a diversified portfolio that spans oil, natural gas, and renewable energy. Shell’s strategic focus on transitioning to a lower-carbon energy future positions it as a leader in the energy transition. The company’s significant investments in renewable energy, electric vehicle infrastructure, and hydrogen projects highlight its commitment to sustainability and innovation. Shell’s robust cash flow generation, strong balance sheet, and disciplined capital allocation support its ambitious growth plans and attractive shareholder returns. As global energy markets evolve, Shell’s diversified and forward-looking approach makes it a compelling investment opportunity for long-term growth and stability.

Shell has been steadily buying back their stock at the pace of about 1 million shares/day. Each Shell ADR, symbol SHEL represents 2 common shares.

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