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The Financial Media Is Confused About the Energy Crisis… but I’m Not

by | Nov 1, 2021

I mentioned on Friday that if natural gas is down again on Monday, it may be time to get into a new position…

Well it was down BIG, and I hope you took that advice, preferably by selling a little Consol Energy Inc. (NYSE: CEIX), which was up before earnings Tuesday — more on that later… 

And if it’s down again, maybe buy a little more.

Yet despite that big move, the Global Energy Crisis received surprisingly little coverage from the financial media… But by now, we shouldn’t be surprised.

As I’ve said close to 100 times, during periods of both turbulence and euphoria, or situations that are clearly important to public interests, financial media headlines often appear similar to one another.

And whenever it’s a slow news week, we’ll see headlines across outlets diverge widely.

That’s a feature, not a bug.

During those slow periods, management throws every story they have against the wall and hopes one sticks… And when it does, they hammer it.

This week happens to be one of those.

Energy Economics This Week

Aside from the Federal Reserve’s interest rate decision on Wednesday and the nonfarm payrolls report on Friday, there aren’t many huge releases coming up. Though there’s certainly something to learn from the data.

Source: Bloomberg

For instance, Monday’s release exceeded expectations for ISM manufacturing and employment, but ISM prices paid absolutely skyrocketed, up 5% to 85.7. 

Remember that for when the Federal Reserve tells us on Wednesday that inflation is transitory.

But the ISM new orders data disappointed big time, showing an 11% decline to 59.8.

New orders eventually become products on the shelf. In case you haven’t noticed, shelves still aren’t 100% full everywhere.

If we’re not making new orders, we won’t be making new products. And if demand remains high, prices will continue to climb.

To me, that’s an obvious statement.

But to the financial media… Well, they just missed it completely.

The Global Energy Crisis and Financial Media

There were a couple of things in particular that the financial media got especially confused about: industrial supply chains and the Global Energy Crisis.

Source: Bloomberg

On one hand, Bloomberg says China is boosting coal production, which is causing prices in Europe to fall below $100 per ton.

Not quite…

It’s true that China is boosting production, but that isn’t being exported to compete with European coal. In fact, China’s barely exported any at all since 2009. Instead, that increase is staying in its domestic market to try and prevent power outages due to low coal stockpiles.

But the coal-burning power plants near the coast are drawing from port stockpiles that continue to dwindle. Seasonal levels of these inventories are at the second lowest level in the history of the data set.

Source: Bloomberg

History is kind of a long time…

This means that China will still need to import coal from the seaborne market, which remains tight, and prices therefore remain likely to stick at high levels.

So, no, coal prices aren’t “declining because of China.” They’re declining because the weather has cooled off… It is Nov. 1 after all.

Source: timeanddate.com

Interestingly, if you scroll back up to that Bloomberg image, you’ll see an article relating to the Global Energy Crisis entitled “Europe Needs Russia’s Dirty Gas to Save it From a Hellish Winter.”

Well I happened to pull up physical delivery for Russian gas into Germany and… it is currently ZERO.

Source: Bloomberg

Bloomberg is implying that European coal prices are falling because of a production increase in an unrelated market… But that coal’s chief competitor fuel — natural gas — is in such short supply they’re relying on Russia to save them.

Both things cannot be true at the same time.

This is why we have data… numbers don’t lie.

Gas supply will continue to be tight, the Russians will continue to underdeliver, and those two factors will keep prices high.

When gas prices are high, coal prices are, too. Coal supply on the seaborne market is even tighter than gas, and even at those prior highs was still cheaper.

Oh yeah, and winter is still coming.

On that note, watchlist member Consol Energy reports earnings Tuesday. Wall Street is expecting around $300 million in revenue and $87 million in EBITDA.

My models are showing that $340 million in revenue and $114M in EBITDA results could be in the cards, which is about 30% over expectations. If CEIX can deliver and provide solid forward guidance, Tuesday will be one heck of a day.

And if the opposite happens, don’t panic and don’t listen to the financial media about the energy crisis… keep it simple.

Just sell something that’s up — like the SPDR S&P Regional Banking ETF (NYSEArca: KRE), up almost 5% — and buy a little more CEIX.

Easy peasy.

All the best,

Matt Warder

Fortune Research

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WRITTEN BY<br>Matt Warder

Matt Warder

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