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Weekly Energy Market Review

Weekly Energy Market Review

Energy Market Summary for the week ending August 18, 2017:
  • US and Canadian equity markets continue to retreat.
  • Energy remains worst performing sector, with most stocks trading near 52-week lows.
  • US energy stocks now underperforming Canadian counterparts.
  • Drawdowns in crude stockpiles and falling rig counts puts a floor under oil prices.
  • Natural gas under pressure due to lack of cooling demand.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

This week's notable Canadian economic data from Statistics Canada:

  • Inflation edged up 1.2% y/y in July, far short of the Bank of Canada's target of 2%. After declining in June, gasoline prices are now up 4.6% annually. Excluding food and energy, the Consumer Price Index is up 1.5% for the year.
  • June's manufacturing sales declined 1.8% to $53.9 billion, on lower sales in the energy, transportation equipment, and chemicals industries. A drop in petroleum product sales from eastern refineries (both lower volumes and lower prices) contributed to the June decline.
OIL & GAS PRICES (USD)

The US Energy Information Administration (EIA) reported a seventh consecutive weekly drawdown in crude inventories, temporarily putting a floor under oil prices. The 8.9 million barrel decline was the largest since September of 2016.

Natural gas inventories rose 53 billion cubic feet last week. Prices continue to be under pressure due to lack of extreme heat in most of the US.

 

WEEKLY US INVENTORY REPORT

AUG 16, 2017

US crude output hits fresh 1-year high

 
What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
NEUTRAL
Status quo in global geopolitics this week as chatter over Venezuelan oil sanctions seem to have died down and North Korea backed down from its threat to bomb the US territory of Guam.
USD INDEX
NEUTRAL
The US Dollar waffled this week, initally rising earlier in the week then sinking late Wednesday. The greenback ended the week slightly positive and firmly above 93.
SUPPLY
NEUTRAL
US crude oil production hit a 1-year high of 9.5 million bbl/day last week, putting downward pressure on oil prices on Wednesday. Prices rebounded on Friday as Baker Hughes reported a decline in North American oil rigs, 5 fewer in the US and 6 less in Canada.
DEMAND
▲ BULLISH
API reported strong gasoline demand for the month of July, the highest since 2007. Crack spreads in the Gulf Coast widened on reports of a fire at Shell's Deer Park refinery and unplanned outage of ExxonMobil's hydrocracking unit at its Baytown refinery.
SENTIMENT
NEUTRAL
Short covering appears to have put a floor under WTI prices at the 50-day moving average, roughly US$46.50. Contango in WTI futures contracts has virtually disappeared while Brent futures have moved into backwardation, where later term contracts are priced lower than the current spot price. The WTI September contract expires on Tuesday.
EQUITY MARKETS

Mixed results in global equity markets this week:

  • The TSX declined for the second week in a row, now firmly below its 50-day moving average.
  • US markets also continue to correct, led lower by small cap stocks.
  • European markets had a positive week, likely due to a slight weakening in the Euro.
SECTORS

Once again, the energy sector was the worst performer on both Canadian and US exchanges. US utility stocks powered to new highs, as the market turns slightly defensive.

ENERGY SECTOR PERFORMANCE

After showing strength through the summer, US energy stocks have fallen back to the lows of spring 2016, now underperforming Canadian counterparts.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

Second quarter net losses at Pengrowth Energy (PGF) widened to $242 million on lower cash flow and a $306 million impairment charge stemming from the sale of its Olds/Garrington property. Q2 production averaged 49,350 boe/day while full year production guidance has been revised to 41,500 to 43,500 boe/day. Pengrowth also reached an agreement will its lenders to relax its existing covenant ratios until the end of September.

Pembina Pipeline (PPL) announced plans to issue $600 million in senior unsecured medium-term notes. The company says net proceeds will be used to repay short-term debt and fund Pembina's capital spending program.

Paramount Resources (POU) has closed on its acquisition of Apache Canada. A special meeting of shareholders is planned for September 8 on its proposed merger with Trilogy Energy (TET). Subject to all approvals, the merger is expected to be finalized by the middle of September.

Heavyweights Cenovus (CVE) and Encana (ECA) tumbled this week, falling 7% and 6%, respectively. Many energy stocks hit new 52-week lows on the TSX this week, including Altagas (ALA), ARC Resources (ARX), Black Diamond Group (BDI), Crescent Point Energy (CPG), Enbridge (ENB), Inter Pipeline (IPL), Keyera (KEY), Obsidian Energy (OBE), Parex Resources (PXT), Pengrowth Energy (PGF), Peyto Exploration & Development (PEY), Precision Drilling (PD), Raging River Exploration (RRX),  Secure Energy Services (SES), Shawcor (SCL), Spartan (SPE), Tourmaline Oil (TOU), Vermilion Energy (VET) and Western Energy Services (WRG).


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

Andeavor Logistics (ANDX) reached a deal to merge its MLP business with Western Refining Logistics (WNRL) for US$1.5 billion and the assumption of US$310 million in debt. The deal will give Andeavor (formerly Tesoro) more exposure to crude oil pipelines and gathering assets in the Permian Basin. Western Refining Logistics shareholders will receive 0.5233 ANDX shares for each WNRL share. Last June, parent company Andeavor (ANDV) purchased Western Refining (WNR) for US$4.1 billion.

Whiting Petroleum (WLL) has sold various assets in North Dakota to RimRock Oil & Gas Williston for US$500 million. The mostly non-operated properties are located in the Fort Berthold Indian Reservation area. The company says net proceeds from the sale will go towards reducing indebtedness.

Energy Transfer Partners (ETP) announced a public offering of 54 million common shares. The company says net proceeds will be used to repay its revolving credit facilities, fund capital expenditures and for general partnership purposes. ETP says this will be the last share issuance until the middle of next year.

Drilling rig operator Transocean (RIG) has reached a deal to buy Norwegian competitor Songa Offshore (OSLO:OSL) for about US$1.2 billion, representing a 37% premium for Songa shareholders. Transocean says the acquisition will help strengthen its position in "harsh environment and ultra-deepwater" drilling. The company expects to save US$40 million annually in operating expenses.

According to industry sources, Cheniere Energy (LNG) is setting up an office in Beijing to help it secure more long-term supply contracts with Chinese customers. If successful, Cheniere will be the first US LNG exporter to establish itself in China.

Most US energy components are also trading near 1-year lows. This week's new 52-week lows on the NYSE include Anadarko Petroleum (APC), Apache (APA), Baker Hughes (BHGE), Chesapeake Energy (CHK), Concho Resources (CXO), EOG Resources (EOG), Exxon Mobil (XOM), FMC Technologies (FTI), Halliburton (HAL), Hess (HES), Helmerich & Payne (HP), Kinder Morgan (KMI), Marathon Oil (MRO) Noble Energy (NBL) Newfield Exploration (NFX), National Oilwell Varco (NOV), Schlumberger (SLB) and Whiting Petroleum (WLL). 


UPGRADES & DOWNGRADES

UPGRADES

  • Diamond Offshore Drilling (NYSE:DO): Upgraded from Hold to Buy at Pareto Securities.
  • Transocean (NYSE:RIG): Upgraded from Underperform to Neutral at Bank of America and from Hold to Buy at Pareto Securities.

DOWNGRADES

  • Cardinal Energy (TSX:CJ): Downgraded from Outperform to Sector Perform at Scotiabank.
  • Granite Oil (TSX:GXO): Downgraded from Outperform to Sector Perform at National Bank and from Strong Buy to Outperform at Raymond James.
  • RMP Energy (TSX:RMP): Downgraded from Market Perform to Underperform at Raymond James.
UPDATED: EVERY WEEKEND
NOTES:
  • COMMODITY PRICES REFLECT NEAR MONTH CONTRACT FROM THE NYMEX/CME GROUP
  • 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
  • SOURCES:
  • EQUITY PRICES & SECTOR PERFORMANCE PROVIDED BY NYSE & TMX GROUP
  • CANADIAN EXCHANGE RATES REPRESENT END-OF-DAY CLOSE
  • Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

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