Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending March 9, 2018:
  • Oil prices rally on hopes for stronger global growth
  • EIA ups US production forecast - once again
  • Condensate prices break multi-year highs (in USD) ...
    ... now close to par with Brent
  • WCS continues to trend lower
  • Chevron looks to exit BC LNG project
  • Exxon raises capex spending to boost production.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • Nothing new on the geopolitical front this week.
USD INDEX
NEUTRAL
  • The US dollar index is back about 90 but remains in a very narrow trading range.
SUPPLY
BEARISH
  • The 300,000 bbl/day Sharara oilfield in Libya was temporarily shutdown this week due to the closure of its export pipeline.
  • US crude oil production hit another record high, rising 86,000 bbl/day to 10.37 million bbl/day last week.
  • The EIA has once again upped its forecast for US crude oil production this year and next by about 1%. The agency now expects production to average 10.7 million bbl/day in 2018, rising to 11.3 million bbl/day in 2019.
  • The IEA warned that US crude production should top 12 million bbl/day by 2023, adding to rising production out of Norway, Canada and Brazil. However, more investment is needed to meet global demand post-2020.
  • The IEA also says it doesn't expect OPEC to significantly increase production capacity.
DEMAND
BULLISH
  • The IEA says global demand growth remains healthy, forecasting a 1.1% growth rate annually through 2020.
  • A very strong US jobs report this week is supportive of strong global growth, which should translate into robust demand.
SENTIMENT
BULLISH
  • Although oil prices dipped early in the week, WTI bounced off its US$60 support level on Thursday. Brent has also managed to stay above US$63.
  • Net longs in both Brent and WTI dipped slightly last week, but are not yet showing signs of breakdown.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • The Bank of Canada (BoC) maintained its overnight lending rate to 1.25% this week and says they remain concerned over lack of progress in NAFTA negotiations and threats of US protectionism.
  • Statistics Canada reported 15,400 jobs added in February, with 54,700 part-time job gains offsetting 15,400 full-time job losses. The national unemployment rate declined to 5.8% in February, down from 5.9% the previous month.
  • Industrial capacity utilization rose to 86.0% in the fourth quarter, up from 85.1% in Q3. Gains were led by the mining and energy resources sector. This is the sixth consecutive quarterly increase.
  • Canada's international merchandise trade deficit was $1.9 billion in January, narrower than a $3.1 billion deficit in December. Imports decreased 4.3% while exports fell 2.1%.

Canadian 10-year bond yields jumped to 2.27% this week, versus 2.9% on 10-year US treasuries.

This week's notable US economic data:

  • The US Bureau of Labor Statistics reported that non-farm payrolls rose by a whopping 313,000 in February, much more than economists were expecting. The unemployment rate held steady at 4.1% on small gains in the labour participation rate. Gains in average hourly wages was muted, indicating more slack in the US economy.
  • The US trade deficit widened to US$56.6 billion in January, falling from US$53.9 billion in December. Exports declined 1.3%, while imports were roughly unchanged.

The Euro dipped earlier this week on uncertain Italian election results and a very hesitant tone from ECB President Mario Draghi, who kept rates unchanged on Wednesday. The Japanese yen retreated 1%, boding well for equity markets.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
65.49
62.04
64.98
58.47
36.27
44.82
42.53
40.88
39.64
30.41
70.53
66.14
65.19
59.16
44.22

Oil prices dipped earlier this week on continued gains in US crude oil output, but recovered most of their losses on Friday on strong US economic data. The heavy oil discount ended the week just below US$26 a barrel, up about US$1.20 from the previous week. Edmonton condensate (C5+) was this week's big winner, now almost on par with Brent, hitting multi-year highs (in USD).

CRUDE OIL FUTURES CURVES
BRENT
WTI
█ OIL PRICE (USD/BBL)   █ MONTH 3   █ MONTH 5 (VS NEAR MONTH)
MANAGED MONEY: FUTURES & OPTIONS
BRENT
WTI
█ OIL PRICE (USD/BBL)   █ LONG   █ SHORT █ NET LONG (1000 BBL CONTRACTS)

US commercial crude stockpiles rose by another 2.4 million barrels last week, again mostly on gains in the Gulf Coast. Gasoline inventories declined for the first time since January, falling 788,000 barrels.

According to Baker Hughes, the US lost 4 oil rigs this week, falling to 796. Canada saw a drop of 15 oil rigs, falling to 196.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

MAR 7, 2018

Crude inventories rise by another 2.4 million barrels on big gains in the Gulf Coast

 
EQUITY MARKETS
    TSX SECTORS
52-WK
    SPX SECTORS
52-WK

Global equity markets staged a nice rally this week. The NASDAQ surged to new highs on a strong showing from large-cap technology names. 

US trade tariffs on steel and aluminum hit commodity-sensitive markets, including the TSX, Australia's All Ordinates and Brazil's Bovespa.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Energy stocks recovered slightly this week, rising 1% on the TSX and 2.1% on the S&P 500.

Dismal fourth quarter earnings from various oilfield service providers dragged the sub-sector into the red this week. US independent refiners were once again the biggest winners, rising 5.5%.

CANADIAN ENERGY NEWS

This week's notable Canadian energy news:

  • Imperial Oil (IMO) says it has made "significant progress" on resolving jet fuel quality issues at its Strathcona refinery. The problem was discovered at the end of December, forcing the company to stop fuel shipments. Imperial says everything should be back to normal by the end of the month.
  • According to Reuters, Chevron (CVX) is looking to sell its stake in the Kitimat LNG Project, a 50/50 joint-venture with Australia's Woodside Petroleum (WOPEY). Possible suitors include Malaysia's Petronas, a private equity firm or Canadian pension fund. Earlier this week, Woodside abandoned plans to build another LNG export terminal at Grassy Point, located 30 km north of Prince Rupert. The company says it will instead focus on its JV with Chevron.
  • Calgary-based Cona Resources (CONA) announced a buy-out offer from Waterous Energy Fund (WEF) for $2.55 per share, representing a 31% premium to the previous day's close. The board has approved the deal, pending the successful negotiation of terms and agreements. WEF purchased 67% of Cona in May of last year. Should this offer be approved, WEF will own 100% of the company,
  • Gran Tierra (GTE) announced plans to purchase and cancel up to 5% of its outstanding shares (representing about 19.27 million shares) over the next 12 months.

This week's fourth quarter earnings:

  • Athabasca Oil Corp (ATH) reported a record 42,064 boe/day of production in the fourth quarter, weighted 87% liquids. Cash flow from operations improved to $37.06 million, up from a $19.7 million loss for the same quarter last year. Net losses narrowed to $209.6 million in Q4, and $209.4 million for the full year 2017. The company's 2018 capital budget was left unchanged at $140 million, with production guidance estimated to be between 38,500 and 41,000 boe/day.
  • Paramount Resources (POU) reported a net loss of $106 million in the fourth quarter, versus a $212 million profit for the same time last year. Netbacks dipped 3% to just under $15/boe. Paramount's 2018 capital budget was left unchanged at $600 million, with $200 million dedicated to bringing new production online next year.
  • Gibson Energy (GEI) reported a net loss of $91.8 million in the fourth quarter, up from a $50.6 million loss for the same quarter last year. Revenues rose 35% to $1.77 billion.
  • Ensign Energy Services (ESI) posted a net loss of $37.6 million for the full year 2017, down from $150.5 million for the previous year. For the fourth quarter, Ensign reported a net profit of $46.5 million on revenues of $270 million, up 15% y/y.
  • Cash flow from operations grew 75% y/y at Tourmaline Oil Corp (TOU), rising to $1.2 billion in Q4. Net income rose to $88 million for the quarter, up 48% from the same quarter last year. Full year 2017 production averaged 242,325 boe/day, up 31% from the previous year. The company has reinstated its quarterly dividend at $0.08 per share.
  • Obsidian Energy (OBE) posted a net loss of $58 million in Q4, down from a $232 million loss for the same quarter last year. Funds from operations rose 5% to $52 million while production rose 18% y/y to 31,447 boe/day. 
  • Kelt Exploration (KEL) reported a fourth quarter loss of $5.4 million, versus a $11.9 million profit for the same time last year. Production rose 27% y/y to 25,063 boe/day in Q4 while netbacks improved 7% to $16.18 per barrel. The company has set a 2018 capital budget of $210 million, while production is expected to range between 28,500 and 29,500 boe/day this year. 
  • Fourth quarter production at Baytex Energy (BTE) rose 7% y/y to 69,556 boe/day, weighted 81% oil. The company posted a $76 million profit in Q4, up from a $9.2 million loss for the same time last year.
  • Chinook Energy (CKE) reported a net loss of $21.2 million in Q4, down from a $6.4 million profit for the same time last year.
  • Cona Resources (CONA) reported a net loss of $108 million in the fourth quarter and $87 million for the full year 2017. Production averaged 16,739 boe/day in Q4, down 8% from the same time last year.
  • Tamarack Valley Energy (TVE) posted a Q4 net loss of $12.5 million, down from a $8.4 million loss in Q4/2016. Production doubled in Q4 to 22,807 boe/day. 
  • Camp-operator Black Diamond Group (BDI) posted a 10% increase in revenues for the fourth quarter, rising to $41.6 million. Funds from operations rose 5% while net losses widened to almost $79 million. The company says it saw growth in all of its markets, except Alberta.
US ENERGY NEWS

This week's notable US energy news:

  • ExxonMobil (XOM) released its growth strategy this week, outlining plans to more than double earnings and cash flow from operations by 2025. Growth will come from the company's upstream, downstream and chemicals business units, including new production from the Permian Basin, Guyana, Mozambique, Papua New Guinea and Brazil. Exxon says it plans to grow output from the current 4 million bbl/day to about 5 million bbl/day in about 7 years.
  • At this week's security analyst meeting, Chevron (CVX) says it plans to increase its cash flow beginning this year, even if oil prices don't rise much further from here. The company says it plans to spend US$18 to US$20 billion through 2020 and vowed to lower their cost structure and continue to "high-grade" their portfolio. 
  • Pennsylvania's Public Utility Commission ordered the shutdown of Energy Transfer Partner's (ETP) Mariner East 1 system after sinkholes exposed sections of the pipeline in Chester County. ETP says the line will be down for up to two weeks as it inspects the line.
  • Devon Energy (DVN) has agreed to sell the southern portion of its Barnett Shale assets for US$553 million, representing 200 MMcf/day of production. Devon says this recent sale brings total divestitures to US$1.0 billion. The company also announced plans to tender up to US$1 billion in outstanding debt securities, buy back US$1 billion in shares and increase its dividend by 33% to US$0.08 per share.
  • Hess (HES) announced a US$1 billion share repurchase program, in addition to the US$500 million repurchase plan previously announced at the end of last year. The funds will come from the company's cash reserves and proceeds from asset sales.

Across the pond this week:

  • The Government of Mozambique has cleared Anadarko Petroleum (APC) to develop its Golfinho/Atum onshore natural gas field, which will supply gas to the Mozambique LNG project. The massive LNG export terminal will have a nameplate capacity of 12.88 million t/yr.
  • Total (TOT) has closed on its acquisition of Maersk Oil, adding another 2 billion in 2P reserves and more than 160,000 boe/day of production to the French energy giant's portfolio. The deal now makes Total the second largest operator in the North Sea, producing an estimated 500,000 boe/day by 2020. Total has issued 97.5 million shares to help finance the purchase, which includes US$2.5 billion of Maersk's debt.
  • Royal Dutch Shell (RDS.A) and private equity firm Blackstone are reportedly in talks to submit a joint bid for BHP's US shale assets. The assets, primarily focused in the Permian Basin, are worth about US$10 billion. Shell is also reportedly looking to offload several oilfields in Norway in its drive to divest up to US$30 billion in assets.
MARKET TECHNICALS
BULLISH INDICATORS
TSX
S&P 500
TOP 5
GAINERS
• Baytex Energy (BTE)
• Cenovus Energy (CVE)
• Crew Energy (CR)
• TORC Oil & Gas (TOG)
• Tourmaline Oil (TOU)
• Andeavor (ANDV)
• Baker Hughes (BHGE)
• Marathon Petroleum (MPC)
• Range Resources (RRC)
• TechnipFMC (FTI)
12-MO
HIGHS
• None • None
ALL-TIME
HIGHS
• None • None
GOLDEN
CROSSES
• None • None
BEARISH INDICATORS
TSX
S&P 500
TOP 5
LOSERS
• Ensign Energy Services (ESI)
• Nuvista Energy (NVA)
• Precision Drilling (PD)
• Raging River (RRX)
• Seven Generations (VII)
• Cimarex Energy (XEC)
• Exxon Mobil (XOM)
• Helmerich & Payne (HP)
• Newfield Exploration (NFX)
• Occidental Petroleum (OXY)
12-MO
LOWS
• Altagas (ALA)
• Birchcliff Energy (BIR)
• Freehold Royalties (FRU)
• Gibson Energy (GEI)
• Imperial Oil (IMO)
• Raging River (RRX)
• Seven Generations (VII)
• Shawcor (SCL)
• Exxon Mobil (XOM)
• Newfield Exploration (NFX)
• Range Resources (RRC)
ALL-TIME
LOWS
• None • None
DEATH
CROSSES
• Spartan Energy (SPE) • None
ANALYST RATINGS

UPGRADES

  • Baker Hughes (NYSE:BHGE): Upgraded from Neutral to Buy at UBS.
  • Baytex Energy (TSX:BTE): Upgraded from Hold to Buy at GMP Securities.
  • Encana (TSX:ECA): Upgraded from In-Line to Outperform at Evercore ISI.
  • Obsidian Energy (TSX:OBE): Upgraded from Underperform to Neutral at CIBC.
  • Helmerich & Payne (NYSE:HP): Upgraded from Neutral to Positive at Susquehanna.
  • Petrus Resources (TSX:PRQ): Upgraded from Market Perform to Outperform at Raymond James.
  • Plains All American Pipeline (NYSE:PAA): Upgraded from Hold to Buy at Stifel Nicolaus.
  • Whiting Petroleum (NYSE:WLL): Upgraded from Neutral to Buy at Seaport Global Securities. from Underperform to Neutral at BofA.
  • Williams Companies (NYSE:WMB): Upgraded from Neutral to Overweight at JP Morgan.

DOWNGRADES

  • Raging River Exploration (TSX:RRX): Downgraded from Outperform to Market Perform at BMO.
NEXT WEEK'S EVENTS

Monday:

Tuesday:

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
UPDATED: EVERY WEEKEND
NOTES:
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SHARE PRICE CHANGES (INCL. NEW HIGHS & LOWS) EXCLUDE DIVIDENDS
  • SECTOR & SUBSECTOR PERFORMANCES WEIGHTED BY MARKET CAP
  • GOLDEN CROSS: 10-WK SMA CROSSES ABOVE 40-WK SMA
  • DEATH CROSS: 10-WK SMA CROSSES BELOW 40-WK SMA
  • 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
  • FUTURES & OPTIONS CONTRACTS FROM ICE/CFTC (WEEKLY DATA FOR PREVIOUS TUESDAY)
  • CHARTPACKS COURTESY STOCKCHARTS.COM
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