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Weekly Energy Market Review

Weekly Energy Market Review

Energy Market Summary for the week ending August 25, 2017:
  • Global bond yields tumble on lack of news out of Jackson Hole
  • US dollar breaks down to fresh 2-year low
  • Oil prices remain stuck in very narrow trading range
  • Hurricane Harvey widens crack spreads & boosts refining margins
  • Integrated and midstream players remain best performers
  • ... while service stocks continue to lag.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

The annual Jackson Hole meeting of world central bankers tuned out to be a snooze-fest, with no major policy announcement. Bond yields declined in the US, Japan and Eurozone this week. Canada's 10-year bond ticked slightly higher to 1.874%. US yield curves continue to flatten.

European Central Bank President Mario Draghi insists the eurozone economy is doing well, thanks to loose monetary policy and generous liquidity injection. The Euro jumped to a 2½-year high this week, sending the US dollar to a fresh 2-year low. The Canadian dollar moved back above 80 cents on Friday.

This week's notable economic data from Statistics Canada:

  • Wholesale sales unexpectedly declined 0.5% m/m in June, after eight consecutive monthly increases. Sales were lower in six provinces, with Alberta leading the declines.
  • Retail sales rose for the fourth consecutive month in June, edging up 0.1% m/m to $49 billion. After a 1.2% decline in May, sales at gasoline stations decreased 1.8% due to lower gasoline prices.
OIL & GAS PRICES (USD)

The US Energy Information Administration (EIA) reported the eighth consecutive weekly decline in crude oil stockpiles, falling another 3.3 million barrels last week. Domestic production rose another 26,000 bbl/day, split evenly between Alaska and the Lower 48 region.

US rig counts declined by 4 this week to 759. Canada also lost 6 rigs, falling to 115 on Friday. However, the number of gas rigs in service rose from 93 to 102.

 

WEEKLY US INVENTORY REPORT

AUG 23, 2017

CRUDE STOCKPILES POST EIGHTH CONSECUTIVE WEEKLY DECLINE DESPITE HIGHER OUTPUT AND RISING IMPORTS

 
What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
NEUTRAL
Fresh US sanctions against Venezuelan financial transactions and President Trump's latest Twitter rampage over desires to withdraw from NAFTA was largely ignored by energy markets this week.
USD INDEX
▲ BULLISH
The greenback tumbled to a 2-year low on Friday blamed on lack of news out of Jackson Hole.
SUPPLY
NEUTRAL
Hurricane Harvey has temporarily taken over 500,000 bbl/day offline this week and spiked gas prices, widening crack spreads. Despite a levelling off of oil rig counts, the EIA reported another 26,000 bbl/day increase in US domestic production. Monday's technical meeting of OPEC and non-OPEC members yielded no major policy announcements.
DEMAND
NEUTRAL
Little news on the demand front this week. US products consumption continues to retreat from this summer's record highs as another summer driving season comes to an end.
SENTIMENT
▼ BEARISH
Oil prices remain stuck in a very narrow trading range. WTI has an upper ceiling of US$49/bbl while Brent remains trapped below US$53.
EQUITY MARKETS

Most global markets ended the week in the positive, except for select currency-sensitive eurozone exchanges. Both the TSX and S&P 500 posted their first weekly increase for August, each gaining 0.7%.

SECTORS

Most sectors ended the week positive. Materials stocks were the best performers, due in part to a sharp increase in copper prices. Despite falling interest rates, staples were hit hard this week on Amazon's entry into the grocery business. 

ENERGY SECTOR PERFORMANCE

A mixed performance from energy stocks this week, with the US energy sector catching a small rebound while Canadian energy declined sightly.

Most integrated and midstream stocks ended the week positive on both sides of the border (except for Suncor). Service-oriented stocks remain the worst performers on the TSX.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

This week's new 52-week lows on the TSX include Crescent Point Energy (CPG), Gran Tierra Energy (GTE), Inter Pipeline (IPL), Precision Drilling (PD), Parex Resources (PXT), Secure Energy Services (SES) and Tourmaline Oil (TOU).


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

Natural gas distributor Sempra Energy (SRE) has agreed to buy power transmission company Oncor for US$9.45 billion in cash through the purchase of its bankrupt parent company Energy Future Holdings. Sempra outbid Warren Buffett's Berkshire Hathaway (BRK.A), who had also been vying for Texas power company.

French energy giant Total (TOT) has agreed to buy Maersk Oil & Gas, a wholly-owned subsidiary of A.P. Moller for US$7.45 billion in shares and debt. Total will issue 97.5 million shares to finance the deal.

According to Reuters, Chevron Corp (CVX) CEO John Watson is expected to step down at the end of September and be replaced by the current Vice Chairman Mike Wirth. Watson has been CEO since January 2010.

Dallas-based Kosmos Energy (KOS) announced "positive results" from a drill stem test of the Tortue-1 well, off the coast of Mauritania. Kosmos says its wells are capable of producing 200 MMcf/day and it plans to begin engineering and design work later this year.

This week's new 52-week lows on the NYSE include Apache (APA), Baker Hughes (BHGE), Chesapeake Energy (CHK), Concho Resources (CXO), FMC Technologies (FTI), Newfield Exploration (NFX), Pioneer Natural Resources (PXD) and Schlumberger (SLB). 


UPGRADES & DOWNGRADES

UPGRADES

  • Bonterra Energy (TSX:BNE): Upgraded from Outperform to Strong Buy at Raymond James Financial.
  • Calfrac Well Services (TSX:CFW): Upgraded from Sector Perform to Outperform at RBC.
  • CNOOC (NYSE:CEO): Upgraded from Underperform to Neutral at Bank of America.
  • Transocean (NYSE:RIG): Upgraded from Underperform to Sector Perform at RBC.

DOWNGRADES

  • ENI (NYSE:E): Downgraded from Equal Weight to Underweight at Barclays.
  • Ensign Energy Services (TSX:ESI): Downgraded from Outperform to Market Perform at Raymond James.
  • Repsol (NYSE:REPYY): Downgraded from Overweight to Equal Weight at Barclays.
  • Statoil (NYSE:STO): Downgraded from Equal Weight to Underweight at Barclays.
  • Total (NYSE:TOT): Downgraded from Overweight to Equal Weight at Barclays.
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
  • Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

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