Crude Observations

Thank God That’s Over

Alrighty then. That’s it. It’s over. Done. Finito. Tripped the light fantastic. Passed into history. Over and out. Gonzo. Never to be seen or spoken of again. That, as they say, is it.


And not a moment too soon because in a word, 2022 was awful. And terrible. And in many ways fantastically awesome.


This, my first blog of the year, is where I review my Fearless Forecast from last year, take some lumps and celebrate some triumphs. And I will still do that. But first, I need to acknowledge some pretty spectacular whiffs I made along the way, because they were big and they mattered, even so far as to affect the actual predictions, forecasts, gambles, parlays and rolls of the dice I made along the way.


They also serve to remind all of us that there is nothing along the lines of a normal year. As soon as you predict something will resume its path of normalcy, you are virtually guaranteed that that prediction will veer hopelessly off course and leave you in a pit of despair.


Black swans are real, even if they take the form of a pandemic, a dictator or a South African egomaniac car designer.


I also promise to keep this shorter, mainly because I am officially still on vacation, but also because let’s face it, so are you. And my resolution last year to make the blog shorter did not survive very long so I am going to do a better job this year.


Five 2022 Events that I completely whiffed on that would have helped make my forecast more true:


  • Elon Buys Twitter: I can’t really be held to account for this, and I’m not sure that it really affected my Fearless Forecast, but it sure sucked a lot of oxygen out of the room and set the stage for volatility in that latter half.
  • Vlad “the Impaler” Putin actually invades Ukraine: I had him sabre-rattling and being his normal douche self, but never did I think he would actually do it, nor did I think that the response by Ukraine would be so gallant and effective. Nor did I think that NATO solidarity would hold, especially with Europe’s energy crisis and the UK being, well, the UK. This really blew up my energy forecast, at least in the middle quarters.
  • Crypto Fraud hits the big time: The complete and utter meltdown of the peripheral crypto world has been amazing (and enjoyable) to behold, but you don’t vapourize that much money without creating a lot of volatility in financial markets.
  • No one can afford anything at all, anymore: With inflation running roughshod over pretty much the whole world due to Putin, pandemic, FREE MONEY, spendy governments, supply chain issues and a healthy dose of commodity price spikes, central bankers were left with little choice but to crank interest rates higher in a hurry. This has led to the double whammy of making everyone’s variable debt that much more expensive and exacerbating the affordability process. The US Fed’s interest pumping ways created the US Dollar wrecking ball that has pummelled any country that wasn’t able to get out of its way. How bad are things? Last week I saw a jar of spaghetti sauce at a Safeway in Phoenix for $10.99, on sale. Or $14 Canadian. My forecast was predicated on rising interest rates and high inflation. But not at this scale.
  • Energy financial markets are disconnected from the physical markets which are disconnected from the equity markets. I had ASSUMED (big mistake) that as the year unfolded, markets would realize that we are in an age of energy insecurity (got that right) and price accordingly (ha!) and that markets would ascribe value to those companies benefitting from this. I was partially right, some of the time, on some of these truisms. Unfortunately, it did not translate well in the real world.


Bonus Round: I did not have Danielle Smith replacing Jason Kenney on my Bingo card. But really, who did? Not sure that affected my Forecast, but… oopsie poopsie!


Alright, let’s get to it. Review time. Time to face the music and take it like a man. As I said at the end of the last quarter, I am resilient and ready to challenge the year ahead rather than dwell on what could have been. While I may have gone from being the Sage of Alberta to the Gasbag of Calgary, I can shake it off with the best of Swifties.


First, I usually make excuses before I review, but I’m done with that. Besides, I did that above.


Here Goes, The Report Card…


Broad Themes


The Fearless Forecast starts with Broad Themes and tries to distill these themes into more concrete predictions. Sometimes it works, sometimes not so much.


I had three obvious themes and they permeate a lot of what I predicted. They aren’t surprising and they remained relevant throughout the year.


  • The rising I’s. Inflation and interest rates


  • Energy Security vs Energy Transition


  • Enough Already aka Pandemic Exhaustion


Each of these was expected to play a role in the forecast.



Politics and Stuff



This year I predicted a rocky road for Empathetic Joe Biden heading into the all-important mid-term elections where it is accepted wisdom that a newly elected presidential ticket and party will get their asses handed to them by a feisty and impatient electorate. And if it seems like the US is always in election-mode, it’s because they are. It’s uniquely exhausting, like a pandemic.



While Earnest Joe Biden has done his best to build back better and be bafflingly boring, the reality is that while his personal electoral win was a landslide by any objective measure, the legislative majority was much more tenuous. The result is that he has been stymied in getting his full agenda implemented and the January 6th Commission, is not something that engages the public at large. While the hearings are now public, the narrative is continually hijacked by events on the ground.


Biden passed his Inflation Propagation Act and had some other legislative wins and the Republicans have gone on an “own goal” bender of blocking voting rights, advancing the most medieval anti-abortion laws they can come up with, immigrant bashing, white supremacist pandering, Putin supporting and Q-Anon love-fests. On top of all this, we have the Former Guy front and centre with all of his issues, legal and otherwise.


Finally, the great Strategic Petroleum Reserve gambit of 2022 which saw 180 million barrels of oil enter the market in the 180 days leading up to the mid terms has actually had its desired effect – gas prices came down significantly and as everyone knows, Americans vote based on gas prices first and foremost, everything else is secondary.


So, the mid terms went surprisingly well for the Democrats.


My first prediction, which will handily not need to be judged until November, was that the balance of power will tilt the GOP way in the Senate, but not the House, meaning 2023 and 2024 will see either horse-trading or nothing of significance getting done in the US, sidelining much of the rest of the Biden agenda, in particular those priorities that relate to more left-leaning causes and, importantly, the environment, which has also been ruled unconstitutional by the Supreme Court.


In an interesting twist, it looks like I had this reversed! The Dems improved in the Senate and would have taken the House as well if they had managed to hold NY State. Whoops! There will still be gridlock though.



This shift of power and what it entails will depend a lot on what happens with Trumpism, such as it is. I predicted that Unproductive Trumpism (the greed, the insults, the rage), much like a cockroach, will die a slow death. I also predicted that while the threatened 2024 Presidential run is still very much in play for Donald Trump, it was unlikely to happen.


The jury is out on this one, Trump announced his candidacy but it feels fake, no one cares and his legal troubles are mounting. The less the Republicans fear Trump the weaker he gets. The debacle in the mid-terms can be laid squarely at his feet.



I also predicted that at least one indictment of Trump will go forward (does a civil suit count? Indictments against his company?) and the distraction will drop him from the ticket. A guilty verdict in either disqualifies him. I also suggested a decisive win in 2022 for the GOP will embolden them to move on from Trump, while, ironically, a (extremely unlikely) decisive loss might also accelerate the ditching of Trump even more.


Also, Hilary doesn’t run in 2024 either. Good lord, I may get this wrong too!


So what happened? Biden did way better than expected and we apparently will have to suffer through a lot more Trump than we want to. The January 6 hearings are damning, but does anyone care? The Trumpian grift and graft is so obvious, I don’t know how he continues.


Grade: D, for missing the Dems doing what a political party is supposed to do – fight and win.



Here in Canada, the Liberals continue to interpret their last minority win as a mandate to implement their entire platform as if they are a strong majority government and their new dalliance with the Federal NDP for support means that as I predicted they are pretty much free to do what they want.



That said, the people are restless. Housing prices are still out of control across major markets even though they will soon collapse under the weight of skyrocketing borrowing costs. Productivity is falling, the economy is underperforming, inflation is on the march and the Liberal government doesn’t seem to have anything remotely approaching a plan, let alone a business case, for dealing with anything..



This is a major problem because as interest rates keep rising and a recession looms, we actually need a government focused on the economy, not the latest performative environmental gesture.



Housing, inflation and energy are the governing Liberals Achilles Heel. The Liberals hubris-driven obsession about the environment above all else will prove their eventual undoing as regular Canadians see their prospects get sucked into a vortex of inflation, rising interest rates and recession.



I hedged but I said I wouldn’t be surprised to see an election in Canada this year. I predicted new leadership for each of the major national parties. Will Jagmeet ever realize he isn’t good at his job and just quit?



Grade: D+. The election isn’t going to happen, but we have new leadership in the form of Pierre Poilievre in the CPC, a distinct lack of leadership from the NDP and everyone hates Trudeau. If the Liberals dropped the writ today, it would be a donnybrook… That the Liberals would likely win.



On the international side, my predictions were for a return to and continuation of some regional tensions.



Let’s deal with the bear in the room first. I said Russia was a big deal to the United States and Europe and a lesser deal to other countries around the world and that while Russia appears to have grand aspirations of territorial or influence expansion, they are a fading power. I suggested that even with the massing of troops, even Putin isn’t crazy enough to invade. He wants his gas pipelines open so he can own European energy insecurity even more than he does. The gambit I saw was influence and fortune, not hegemony.



There is no passing grade here. Putin has wrecked a country and is in the process of permanently crippling his own, but at least there is oil money. For now. The gas games he has been playing with an insecure Europe have come to a head with the sabotage of the Nordstream pipelines which will likely NEVER re-open. Militarily, Russia is losing in Ukraine and nuclear sabre-rattling is at Cuban Missile Crisis levels. The shirtless war criminal riding a stolen horse remains in power for now, but his best before date has clearly passed. Even his gas gambit has failed, as Europe currently enjoys a record heat wave and has surplus LNG that should tide them through most of the rest of winter.



The Iran crisis, which has been ongoing for more than 40 years will continue to percolate. A robust nuclear program is their goal and they are well on their way. I suggested Biden may jump into a new JCPOA deal if energy prices persist at high levels if only to increase “official” supply. Then Ukraine happened. The US very much wants these barrels added. Or at the very least use the spectre of a deal to talk oil prices down. But it’s hard to do a deal with a repressive regime that is killing women for taking off a hijab, supplying drones to Russia and serving as a back door for Russian energy sales while bombing its neighbour Iraq. Like I said, it’s complicated!



China is a belligerent and annoying problem. Clearly their goal is to challenge the US for dominance in the Pacific, Africa and South America. Donald Trump misplayed this by being so inwardly focused. Biden risks exacerbating this by being distracted by Russia and Iran. Biden will need to build a much broader coalition to deflect China’s economic might and thwart some of its more malign ambitions. Hong Kong is gone. Taiwan is for sure next, but that’s probably a 2023 priority for the CCP who are going to spend 2022 deleveraging and then re-energizing their economy. Then Ukraine happened. And China picked cheap energy from Russia.




South America, including Venezuela which is in its 1229th year of economic stagnation seem to be on a bit of a razor’s edge with inflation accelerating across the continent. Brazil and Argentina aren’t as stable as they were just a few short years ago. There is a strong potential for internal conflicts. Then Ukraine happened and suddenly Maduro is fielding calls from Oily Joe Biden. On the flip side, elections of leftist politicians in Ecuador and Colombia have put those countries’ energy industries on notice that their services are no longer needed. This is 1 million barrels at risk.



Lastly, Africa, whose countries comprised more than half of the top 10 humanitarian crises list for yet another year will continue to be a pawn for the major powers. Then Ukraine happened, everyone is likely to starve and no one cares, not even the UN, who apparently are just fine with starvation as a population control tool.



Grade for all this is a Black Swan induced D-. The fallout from Ukraine and the realignment of the world order will unfold over decades, not months. What it looks like in the end is anyone’s guess, but the longer that military action continues in Ukraine, the worse and more isolating it will be for the Russian regime and the more problematic it will be for its cynical quasi-supporters in China and India and its tin pot dictator partners Iraq and, lately, North Korea. The Western World, for want of a better term, has the wealth and resources to wait this out. NATO is stronger than ever. Russia’s economy has been set back 25 years by sanctions, maybe more. It is not good.



Energy and Environment



On the energy and environment front, my prediction was that 2022 was going to be a year of transition but not of the variety we typically talk about.



Instead, the story was to be dominated by energy (in)security and energy pricing. Mostly of the rising variety.



Well, I got that right. But not for the reasons I thought were clear.



The logic for rising prices was as follows:



The entirely predictable result of the human tendency to pursue one track at all costs (renewables and net zero) has been a breakdown in the energy security compact, with prices rising in almost exponential pandemic fashion across the globe and transitions running into the harsh reality of winter, scarcity, inflation, human nature, development aspirations, lack of investment, intermittency, realpolitik and cost. Not to mention the invasion of Ukraine and the resultant energy insecurity and price.



The global energy system is like a living and breathing entity with each part inter and intra-dependent. Late 2021 Europe and early winter 2022 was just a prelude and with prices spiking after the Ukraine invasion, people want a scapegoat. And in the 2022, I said that scapegoat might be the entirety of an all too rapid attempted transition to net-zero.



Wile energy prices have come off their highs, they remain elevated. With inflation rampant, the price of solar and wind is rising. Minerals are scarce and supply chains are wrecked. The cost of capital is increasing dramatically with interest rates. Subsidies that once seemed easy-peasy are suddenly becoming a burden on national treasuries.



I said something had to break and it wouldn’t be the oil and gas industry.



Absent Ukraine, the oil supply situation was dire. While the LTO train managed to recover some ground in 2021, they will require sustained price increases to overcome regulatory and financial hurdles to get back on a growth curve. A global lack of investment has seen supply get squeezed. OPEC can’t meet their quotas, drilling productivity in the Middle East is in the tank. Mexico is so concerned about internal self-sufficiency; they are planning to stop exports. South America is cutting back. Joe Biden is draining the US’s energy savings accounts. Meanwhile, the fantasy of windmills, solar panels, EVs and endless access to virtually free capital is taking a long time to be shattered.


On the natural gas front, in every country aside from Canada there is a desire to produce and have more natural gas, whether through domestic supply or imports via pipeline and LNG. Then a couple of pipelines got blown up. If ever there was a time for the fifth largest producer of natural gas in the world to get its head out of its ass and realize the “business case” for natural gas, it’s now. But what do I know?



My prediction for 2022 was that we are on the verge of one of the biggest oil runs we may have witnessed in decades. Canada’s oilsands were going to kick ass in 2022.


Started off OK, right? Energy stocks were the runaway star performers of the markets right up until late June, when in the space of 20 days, they gave it all back. Stocks have recovered a bit, but the year closed out with a sinking feeling for energy investors as China’s Covid zero policy allowed everyone to assume energy prices would collapse, plus the oncoming recession was going to put the brakes on oil demand growth.


Round it out with everyone and their cousin shrieking about how we were at peak demand for oil (we’re not) and that the invasion of Ukraine was going to accelerate the energy transition (it’s not) and the markets could be forgiven for throwing up their hands in the face of all this nonsense.



It wasn’t all bad for the renewables world. I did after all predict a continuation down the energy transition pathway – albeit through several detours and construction zones.



These are pretty broad themes/predictions, but they need to be. The transition will happen. Still. But it’s a bumpy ride. And it has just gotten a lot more expensive to execute. Inflation. Interest rates. Cost of capital. These things matter. THEY WILL MATTER IN 2023 (but that’s for next week).



Oh yeah, electric vehicles. 2022 will see the major automakers finally strike back at Tesla. Elon’s going to be going through some things. Like buying Twitter. And being exposed as a philandering dickhead.



Grade? C+. The price of oil ran ahead of itself on global tensions and now is untethered from the fundamentals of the physical market. This is leading to a lot of volatility. The energy transition continues but it’s becoming much more of an “all of the above” plan for energy security with Europe now deciding that nuclear and natural gas are “green” and every world leader (except Trudeau) realizing that the path to energy security is actually having access to all forms of energy.



Price of oil


This is the flagship call of the Fearless Forecast. Based on my monumentally bullish call above and the war in Ukraine, I’m clearly all in on black gold.



First off, I expected oil and gas demand to increase by about 2%-3%, to 102 mm bpd as economies continue to reopen. How this demand is met is the biggest question for prices. If it comes from OPEC+++++++, with Saudi Arabia managing the market, I didn’t see a wave of supply. With Russia pre-occupied and treated as a pariah, the situation is even worse.



Everything that happened this year was bullish for oil prices. Which means of course that the price cooperated for a bit then cynically stabbed me in the back.



My year end WTI price is $86.23 and my average price for the year is going to be $82.34. Actual year end price is $80.47 and the average is $94.44.



Grade: In a normal year I would have been within 10 cents. B-.



Price of Natural Gas



Ah natural gas, I can’t quit you!



For too many years, natural gas has been disappointing me and pretty much all of Canada with lousy pricing for what seems like forever. Flashing great potential at times before collapsing back to “super-cheap alternate fuel – why don’t we use even more of it” status. If only there was a business case to translate our abundance of cheap to produce natural gas into massive windfalls for our treasury (maybe goosing that Canadian dollar at the same time).


You know, insignificant foreign stuff like gas consumption in the US being way up. Exports of LNG growing rapidly and exports to Mexico also rising. An electricity crisis in Europe that has exposed the soft underbelly of the energy transition, the need for gas-fired power generation, and lots of it. Undersea pipelines from a rogue nation blowing up. Demand through the roof!


With everything happening worldwide, could it be that THE TIME IS NOW!?!?!?!?


My year end price for natural gas (NYMEX) is $4.23 with an average price of $3.84. I predicted that AECO will again have a better year than I think many Canadian producers are used to, which, combined with oil sands prospects will generate sufficient royalties to eliminate Alberta’s deficit by 2023. Which will actually happen BTW.


Actual prices at the end of the year were an average of $6.58 and a closing price of $4.475 (per MCF).


Grade: B. I lucked into it, but gas is looking great going froward and I for one am happy to be in  on this business case.



Production, Drilling and Capex



For many producers in the Permian and continental United States, I said drilling would recover with prices over the course of the year, but it isn’t going to be dramatic as players watch prices, wait to see what the Biden administration will try roll out for emissions regulations and struggle to get increasingly expensive capital allocated to them.



To maintain production against its epic decline rates, the US LTO industry needs to drill and complete thousands of wells every year. To grow this requires an even larger investment amid regulatory certainty.



Capital for new drilling programs is scarce and cost is rising. Share buybacks, discipline, debt reduction, dividends are the order of the day.



The monstrous DUC inventory has been mined and the dirty little secret of the DUC count is that probably a quarter of these were never going to completed anyway. Rig count has continued to grow with prices, but break evens are rising with drilling costs as inflation and supply chain issues continue to impact an industry that consumes a tremendous amount of raw material.



The Biden administration continues to press a green agenda that doesn’t feel like it acknowledges the need for oil and gas production unless it is politically expedient.



Given all of the above, the incentive to drill is weak.



Drilling activity and capex in the US was expected to be up 10%. It’s going to be a different year for American drillers – still activity, but the ongoing commitment to capital discipline will make things seem tight.


We believe that US production can grow, but it’s going to take time. My initial forecast was 12.0 mm boepd for year end. With the current crisis I thought we may get closer to 12.5 but didn’t revise. Actual year-end was 12.1 mm, which I will take as a rare win.




In Canada, I predicted activity levels should over the course of the year more closely resemble what some are hoping they can call a “normal” year. Intensely active areas of conventional unconventional (tight oil, deep basin, condensate, liquids rich, natty) activity in places like the Duvernay/Montney/Viking and the Bakken but not much in between, at least for the first part of the year. Maybe some pick up in heavier areas as the year progresses. Rig count will also pick up in British Columbia as drilling to support LNG Canada picks up. Continued optimization and slow-footed brownfield expansion in the oilsands will continue, but not much more. Costs will rise due to inflationary pressures. Lack of manpower will hold back many programs and contribute to wage inflation.



For Canada I predicted not much growth above replacement of natural declines, notwithstanding recent record production levels. With Ukraine, everyone wants our non-psycho oil but egress holds back any material expansion. The Feds promised 300k boepd. We could do it, but not sure how we would ship it.


I confidently predicted that activity in Western Canada will be … about 10% ahead of 2021 with 6,000 (+/- 300) combined oil and gas wells drilled in 2022. Capex was expected to be up 10%, with an upside for 20%. Actuals? Well they were about 5,500 and 15% capex increase. Another win!


OPEC production levels was always going to depend on what happens with the re-upped OPEC/NOPEC agreement at the various jump-off points through the year. At current price levels, OPEC is just below the goldilocks zone and will use its perceived market power as a regulator.



In the rest of the world, it was a limited growth scenario. New projects in the North Sea will continue to ramp up and investments in Africa (Gabon) will come on-line. Latin America will be sold as a growth area – look for Brazil to disappoint because that is what they do – but material growth is, as always, a couple of years out.



The Russian invasion has picked the scab off the absurd lack of investment in the oil and gas sector and overreliance on a limited number of sources. Inventories can come down very rapidly and that is a difficult trend to reverse once it starts. Russia aside, demand continues to recover from the pandemic induced consumption decline, and when consumption snaps back above 100 million barrels of oil a day by year end (which it will) a poorly managed supply expansion and resultant additional price spike could stick a pin in the global economy. We actually need production growth. Just not too much, so we can keep the party going.



Grade: B. There were pockets where everything more or less happened that was expected, but producers and producing countries know what they are doing. So this part of the forecast is actually easy.


M&A Activity



I predicted a robust trend to continue through 2022 as property consolidation, non-core asset sales and private equity investment all pick up as the industry adjusts, yet again, to a new normal. Expect the M&A activity to be broadly based – upstream, downstream, oil, gas, services and everything in between.



On the Canadian side, I predicted M&A activity should pick up as portfolio rotation out of inflation sensitive sectors brings American and international investors back to Canada and our absurdly high Free Cash Flow yields start to attract interest. In addition, I expected a prominent Canadian name or two to find themselves with new foreign owners during the year.



Also, with all this cash, still low valuations and nowhere to put it, I predicted at least one Canadian name is due to take itself private. My thoroughly scientific Twitter poll had 190 votes and 41% said Whitecap and 32% said Baytex.



There were many deals of note during the year but there should have been more. Warren Buffett can’t be the only one seeing this opportunity.


Deals of note include:


  • Whitecap bought XTO Energy for $1.6 billion
  • Harry Hamm offered to take Continental Resources private
  • Warren bought Oxy
  • Tamarack Valley bought Deltastream
  • Teck is contemplating selling Fort Hills
  • The Total Energies Canadian portfolio is in play
  • Tourmaline bought Rising Star
  • Cenovus invested in a refinery before it blew up
  • Strathcona Resources bought Serafina
  • Devon acquired Validus
  • Centenial acquired Colgate
  • Oasis acquired Whiting
  • Crescent Point bought some assets from Paramount



On the services side, I was bullish on energy infrastructure and related industries and see that as an area where Canada will see a fair amount of activity.  Mid and downstream oriented companies will continue to be of interest to strategic consolidators and private equity.



In the new Russia reality, Canadian companies represent a stable investment in an unpredictable world. Put another way:



Canada is a currency advantaged, undervalued and stable jursidiction for consolidators tired of the madness in other markets. Global recovery tight supply indicates a commodity super cycle, likely the last big run of many careers including mine. Russia only upped the ante. Show me the money people!



Grade: C. Lots of deals but not enough and it slowed to a crawl in Q4. Only go private was in the US and we are still waiting for a flagship foreign re-entry into Canadian production (note that there is plenty of foreign investment in downstream). It doesn’t help when the federal government actively pours water on potential development, can’t figure out its climate strategies and is generally perceived by anyone that matters in the investment decision process as actively hostile to the energy sector.



Canadian Dollar



It was expected that he Canadian dollar would see some relative stability this year with commodity prices, but instead it has been subjected to the global wrecking ball that is the US dollas. Our overdependence on unproductive real estate was a flashing warning sign. Will our government pay attention? Judging by the Federal budget and tepid response to inflationary pressures and energy insecurity, they don’t get it. Every country around the world has blown its brains out with debt the last year to spend out of the pandemic but on a relative basis, Canada is far and away the leader. Inflation in Canada is running slightly behind the US and our economy is underperforming which means the Bank of Canada can’t be as aggressive as the US Fed to raise rates, which will drag on the dollar. I expected the Canadian dollar to close the year around $0.82. NOT $0.7396! Ouch. I am in the US currently, double ouch.


Grade: F for Fail! Recession talk. Oil volatility. Lack of investment. Being leapfrogged by a hawkish Fed. A rush to safe havens driving up the US dollar and general apathy to Canada has meant a range-bound dollar has been laid low. We are so screwed. If only there was a business case for propping up the dollar!


Interest Rates and Inflation



Inflation, right? Big deal, right? Rising prices beget rising prices. Spaghetti sauce for $15. We have months to go before things settle down.



Despite giving back some gains, energy prices have risen by close to 50% and lack of investment suggests this is a new plateau. Housing prices – both prices and rent – remain at record levels – not only in Canada but around the US and the rest of the world.



Asset bubbles in tech, crypto, NFT, art and other markets peaked in Q1 by any objective measure and the whole thing has blown up spectacularly in a wave of insolvencies, margin calls, grift and fraud. And all it took was a 2%-2.5% increase in the Fed Funds rate. What a stable market we created with crypto.



Wage growth is running rampant everywhere except Canada (yay for us?). Supply chain disruptions continue, some are permanent. The renewables transition is sucking up every spare ingot of nickel, copper and other base metal around, raising prices for solar panels, wind turbines, wires for electrification and ultimately energy prices. Again.


Now we have a war involving one of the largest energy producers in the world and two of the largest wheat exporters.


These are not transitory signals. There is a red engine light is flashing on the global dashboard. We’ve been ignoring it too long. I predicted rates to increase by 150 basis points in the US and Canada this year. I said I wouldn’t be surprised to see the US start with a 50 bp increase early in the year. People made fun of me for being too aggressive. Ha!




I also predicted a soft landing for the economy as long as we could keep oil prices below $100. Was I high? Jay Powell is telling everyone who will listen that a Fed induced recession is coming. He’s mentally incapable of lying. He single-handedly created the wrecking ball. It’s coming.



Grade C – Fed Funds rate has gone up by 4.25% this year. Bank of Canada is doing their best and have raised rates by 4.00% and our currency is in the toilet. Right call on inflation, was way too conservative with interest rates. Have now loaded up on GICs.






Here’s what I predicted for 2022:


  • TransMountain Expansion crossing the midpoint with multiple spreads operating during the year in Alberta and BC
  • Coastal Gas Link continuing notwithstanding current challenges
  • NGTL Expansion well underway
  • Continued Petchem investment
  • Signature CCUS projects
  • Renewables projects galore including utility scale solar, wind and storage projects including

pump storage.



People are spending money. In Western Canada. Of all places! On something other than real estate.


Grade: A+! It’s all happening. IPL’s Heartland Petrochemical Complex produced its first plastic pellets at the end of Q2. Unfortunately the lack of a business case for LNG continues to hold back serious investment aside from LNG Canada.


Stock Picks


True to my rules, I picked two Canadian E&P’s as well as two service-oriented companies and, finally, one non-Canadian producer and a service company.


Pick #1 was Suncor. Even with all their incidents they still did OK.


Pick #2 was Encana. I couldn’t find the ticker so I used Ovintiv instead. Apparently they are finally doing something right? My


Pick #3 was Altagas. Midstream felt right, but the bottom fell out. Divvies are good though.


Pick #4 was my OFS play PHX Enery Services. Tech. Drilling. Services. Home run.


Pick #5 was Earthstone Energy. What? That’s right. A midcap LTO Permian player. Sue me.


Pick #6 was my environmental company – Sunpower. A solar installation business in subsidized and sunny California. What a dud.



Grade: C. I may be underperforming my benchmark, but the benchmark doesn’t have to hold a renewable, a service company and two US companies. My core picks kicked ass.



My time here is done.



Invest wisely. Don’t short the Fed.

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