Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending December 29, 2017:
  • Weakening USD boosts commodity prices ...
  • ... powering TSX to record highs
  • Frigid winter weather gives a lift to natural gas
  • Canadian oil rig counts cut in half
  • Brent and WTI surge to new highs
  • WCS takes a 14% haircut in December
  • TSX energy sector posts another weekly gain.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

US and Canadian bond markets diverged this week, with the US 10-year yield falling to 2.4% while Canada's 10-year rose to 2.04%. The US yield curve declined again this week, falling to a spread of just 0.5% (10 vs 2-year rates).

Threats of monetary policy tightening in Europe and Japan sent foreign currencies higher, sinking the US dollar to a 3-week low. For the month of December, the US dollar has seen a drop of 1.3% while the loonie and Euro saw gains of 2.6% and 0.8%, respectively.

2017 was one of the worst years for the greenback, falling over 10%. In contrast, the Euro had one of its best years since 2003, gaining 14% while the loonie rose about 7% over the past 12 months.

OIL & GAS PRICES (USD)

The heavy oil discount for Canadian crude declined slightly to US$25.50/bbl on Friday. Discount for Canadian Light also dipped marginally from about US$9 to US$8.50. For the month of December, discounts on Canadian heavy crude widened to an average of US$22, up from US$15 in November.

For the month of December, oil prices averaged as follows (change m/m):

  • Brent: US$64.09 +1.26 (+2.0%)
  • WTI: US$57.95 +1.28 (+2.3%)
  • Cdn Light: US$52.10 -3.05 (-5.5%)
  • WCS: US$35.56 -5.99 (-14.4%)

Edmonton Condensate prices averaged $75.30 for the month of December, down from $77.35 the previous month (CAD).

According to a Reuters survey of 32 economists, expectations for Brent crude prices has increased to almost US$60 a barrel in 2018. US exports are expected to continue climbing thanks to a steep discount between Brent and WTI, which is forecasted to extend well into next year. Expectations for WTI prices have also been increased to almost US$56 a barrel, up US$1 from the previous month's forecasts.

Frigid winter weather, lower production and a drawdown in inventories helped boost natural gas prices by about 11% this week, for both Henry Hub and Western Canada's AECO gas.

However, analysts at GMP FirstEnergy warn not to expect a recovery in Canadian gas prices next year due to continued infrastructure outages and declining market share. GMP has lowered their 2018 AECO price forecast from $3.60 to $2.21/MMBtu.

Refinery utilizations rates jumped to almost 96% last week, further reducing crude inventories and adding to product stockpiles.

The number of oil rigs in service south of the border was unchanged at 747 this week. Rig counts in Canada were cut in half to just 62.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

DEC 28, 2017

CRUDE STOCKPILES CONTINUE TO FALL AS US REFINERIES RUN FLAT-OUT INTO CHRISTMAS BREAK

 
What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
▲ BULLISH
Bombing of a key export pipeline in Libya earlier this week help boost oil prices once again. Production out of Libya has now dipped below the 1 million bbl/day mark.
USD INDEX
▲ BULLISH
The greenback continued its retreat this week, boosting all commodity prices, including energy.
SUPPLY
▲ BULLISH
US crude production dipped from record levels last week while rig counts seem to have flatlined from the end of last summer.
DEMAND
▲ BULLISH
Demand from Gulf Coast refineries remains high, driven by strong demand for gasoline exports. Most US refineries running at capacity, driving crude stockpiles lower for the sixth consecutive week.
SENTIMENT
▲ BULLISH
Both Brent and WTI broke out to fresh multi-year highs, despite low trading volumes. WTI closed above US$60 for the first time since June 2015.
EQUITY MARKETS

Higher commodity prices helped boost the TSX and FTSE to new record highs. Chinese markets also rose this week on positive economic data.

US markets ended the week flat to lower on low trading volumes. European markets generally saw declines, blamed on further strengthening of the Euro.

SECTORS

The Canadian heath care sector surged 9% this week on irrational exuberance over newly-listed cannabis stocks. Canadian energy stocks also had a good week, gaining an average of 2.3%. South of the border, industrials, materials and energy stocks managed to post small gains, as did the utilities sector on falling bond yields.

ENERGY SECTOR PERFORMANCE

Gains were seen across all TSX energy sub-sectors this week. Global oil majors and several independent refiners in the US hit new 12-month highs.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

TransCanada (TRP) has agreed to sell its retail power contracts to EDF Energy Services. Financial terms of the deal were not disclosed.

Montreal-based SNC-Lavalin (SNC) announced the signing of a new agreement with Shell to provide pre-feasibility and feasibility studies for modularization options on Shell’s oil and gas projects.

Husky Energy (HSE) reached a new 52-week high on the TSX this week.


S&P 500 ENERGY STOCKS
S&P 500 ENERGY STOCKS

Texas-based EPCs McDermott International (MDR) and CB&I (CBI) announced a US$6 billion merger, creating a "vertically integrated onshore-offshore EPCI company" with combined revenues of about US$10 billion and a project backlog of US$14.5 billion. Upon closing of the deal, MDR shareholders will own 53% of the new company, with CBI shareholders owning the remaining 47%.

Royal Dutch Shell (RDS) says it expects President Trump's tax reform to be "favourable to Shell and to its US operations" with some of those tax savings to be reflected in the company's fourth quarter results. The recently enacted legislation reduces the US corporate tax rate from 35% to 21%.

New 52-week high on the S&P 500 include Andeaver (ANDV), BP (BP), Chevron (CVX), Concho Resources (CXO), ConocoPhillips (COP), EOG Resources (EOG), Marathon Petroleum (MPC), Occidental Petroleum (OXY), Phillips 66 (PSX), Royal Dutch Shell (RDS/A), Statoil (STO), and  Valero Energy (VLO).

UPDATED: EVERY WEEKEND
NOTES:
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • FTSE ALL WORLD INDEX = MARKET CAP WEIGHTED INDEX OF 47 COUNTRIES
  • TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SHARE PRICE CHANGES EXCLUDE DIVIDENDS
  • CANADIAN EXCHANGE RATES REPRESENT END-OF-DAY CLOSE
  • SOURCES:
  • COMMODITY PRICES REFLECT NEAR MONTH CONTRACT FROM THE NYMEX/CME GROUP
  • EQUITY PRICES & SECTOR PERFORMANCE PROVIDED BY NYSE & TMX GROUP
  • CHARTPACKS COURTESY STOCKCHARTS.COM
  • Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    0