Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending April 6, 2018:
  • Markets rattled again by Trump's twitter rants
  • PM Trudeau visits Suncor's Fort Hills ...
    ... and insists Trans Mountain Expansion will get built
  • Imperial and Enbridge put AB/BC natgas assets up for sale
  • BMO warns Canada's energy sector faces "extinction"
  • Higher crude & gasoline imports spike Cdn trade deficit
  • WCS prices hit 2-year high as discount narrows
  • US oil rigs counts spike higher ...
    ... while more Canadian oil rigs come offline
  • China threatens to target US petrochemicals sector.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • No new news on the geopolitical front this week.
USD INDEX
NEUTRAL
  • The USD ended the week roughly unchanged.
SUPPLY
BEARISH
  • US crude oil production rose again last weekto a new record high of 10.46 million bbl/day. After flatlining for the past few months, the number of oil rigs in service took a big jump on Friday, rising by 11 to 808 in the US.
  • Russia's oil output rose 10.97 million bbl/day in March, up from 10.95 million in February.
  • Output from Iraq averaged 5 million bbl/day so far this year, substantially higher than the country's agreed production cap of 4.35 million bbl/day. The Iraqi government approved a plan to raise output to 6.5 million bbl/day by 2022.
  • Qatar’s energy minister says he supports a more permanent arrangement between OPEC and Russia, even after the current production pact expires. Qatar says although oil prices have recovered, prices aren't high enough to stimulate investments in the energy sector.
DEMAND
NEUTRAL
  • No new news on the demand front this week.
SENTIMENT
BEARISH
  • Brent and WTI have pulled back from the highs of late March after failing to break out to new highs.
  • Net longs in managed money contracts declined last week, particularly on WTI which has seen an increase in short interest.
CURRENCIES & BONDS

This week's notable economic data from Statistics Canada:

  • Canada added 32,000 jobs in March, mostly in Quebec and Saskatchewan. About 68,000 full-time job gains offset 36,000 part-time job losses during the month. Employment in Alberta was roughly unchanged, but the unemployment rate declined to 6.3%. The national unemployment rate was unchanged at 5.8%.
  • Canada's merchandise trade deficit widened from $1.9 billion in January to $2.7 billion in February, on higher imports of energy products. Energy imports rose 15% to $3.4 billion, the highest since November 2014. Imports of crude rose 15.4%, mostly coming from the United States. Imports of refined petroleum products gained 24% on higher gasoline imports into BC.

This week's notable US economic news:

  • The US trade deficit widened to US$57.6 billion in February, up US$900 million from the previous month and the highest since October 2008. February marks the sixth consecutive month of widening deficits.
  • After a blow-out employment report in February, the US added just 103,000 jobs in March, far short of expectations. The national unemployment rate was unchanged at 4.1%. Average hourly wages ticked higher by 0.3% in March, bringing the annual rate to 2.7%.

The US dollar ended the week roughly unchanged. The loonie gained 0.7% on strong employment data and progress on NAFTA talks.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
67.11
62.06
62.93
56.39
44.65
44.82
42.53
40.88
39.64
30.41
70.53
66.14
67.73
61.53
46.05

Oil prices ended the week mostly lower. Backwardation on both Brent and WTI continues to narrow, particularly on the WTI futures curve. The spread between WTI and Brent is holding steady at about US$5 a barrel.

The discount on Canadian Light widened from US$4.40 last week to US$5.70 a barrel on Friday. In contrast, the heavy oil discount continues to narrow, falling to US$17.40/bbl on Friday from a high of over US$30 in early February. Western Canadian Select (WCS) topped US$46 a barrel this week for the first time since late June 2015.

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)

Oil rig counts in the US rose by 11 to 808. The number of oil rigs in service in Canada declined again this week due to the spring thaw, falling by 23 to 48.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

APR 4, 2018

Gulf Coast inventories fall another 7 million barrels as stockpiles in Cushing continue to build

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

North American markets were rattled again this week by President Trump's threat to impose tariffs on US$150 billion worth of Chinese imports. China fired back, threatening similar retaliatory action. About 40% of China's list of 100 American products targeted for tariffs are plastics, petrochemicals, petroleum products and specialty chemicals. Negotiations between the two countries are still on-going.

Large-cap technology names remain the worst performing sector in the US, while money continues to flow out of high-flying cannabis stocks in Canada, sending the healthcare basket 9% lower. 

Canadian energy was the only sector in North America to end the week higher, gaining almost 3% on higher WCS prices.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

According to BMO Capital Markets, Canada's oil and gas sector faces "extinction" unless producers consolidate. The bank lists Canadian Natural Resources (CNQ), Whitecap Resources (WCP) and TORC Oil & Gas (TOG)  as potential consolidators among the country's oil producers. Natural gas producers are more fragmented but BMO points out that ARC Resources (ARX) and Tourmaline Oil (TOU) have the strongest balance sheet.

CANADIAN ENERGY NEWS

PM Justin Trudeau visited Suncor Energy's (SU) new Fort Hills Oil Sands Mine this week meeting, with employees, energy executives and First Nations community leaders. Trudeau said Kinder Morgan Canada's (KML) Trans Mountain Expansion project is in the best interest of all Canadians and will get built. The PM blamed the previous Harper government for the country's lack of progress on pipeline construction. Fort Hills is jointly owned with Teck Resources (TECK.B) and France's Total (TOT). 

The Globe and Mail is reporting that Imperial Oil (IMO) has put their Horn River shale gas assets in northeastern BC up for sale. The 239,000 acre property includes infrastructure, road access and a processing facility. The company ran a successful hydraulic fracturing pilot plant on the lease for several years before suspending operations in the spring of 2015. Late last year, Imperial cancelled any further development plans on the asset, taking a $289 million write-down on the project. Horn River is a 50/50 JV with parent company ExxonMobil (XOM).

Bloomberg is reporting that Enbridge (ENB) has hired RBC to sell a group of natural gas assets in BC and Alberta, worth an estimated $2 billion. Enbridge acquired the properties through its purchase of Spectra Energy in 2016. Late last year, the company announced plans to divest about $10 billion in non-core assets to help pay down debt. Reuters is also reporting that Enbridge is looking to sell a 50% stake in its German wind farm.

A subsidiary of Keyera (KEY) has entered into a 20-year agreement with Encana (ECA) to develop its Pipestone liquids hub and the planned Pipestone processing facility, currently under construction near Grande Prairie, AB. Keyera will fund the remaining development costs for the liquids hub, estimated at $105 million. It will also own and fund the planned Pipestone processing facility, which is expected to start up in 2021.

TransCanada (TRP) announced the start of its Northwest Mainline Loop-Boundary Lake pipeline, completing the final section of its 2017 Expansion Program on the NOVA Gas Transmission (NGTL) System. The 2017 expansion included 230 km of new pipe and additional compression facilities, increasing NGTL's capacity by 500 MMcf/day.

Bellatrix Exploration (BXE) announced the start-up of the Phase 2 expansion project at its Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut gas plant at Alder Flats, brought online ahead of schedule and under budget. The company also reduced its capital expenditure budget to between $55 to $60 million, down from a previous guidance of $65 to $80 million. Full year 2018 production guidance has also been reduced by about 1,000 bbl/day to between 34,000 to 35,500 bbl/day.

Birchcliff Energy (BIR) and AltaGas (ALA) announced a 15-year agreement for natural gas processing whereby Birchcliff will provide up to 120 MMcf/day of natural gas feedstock for Altagas' sour gas processing facility in Gordondale, AB. Birchcliff says the new arrangement will reduce their fees at Gordondale, which will lower its annual average operating expenses to between $3.40 and $3.60 per boe.

Obsidian Energy (OBE) says it is in discussion with partner China Investment Corp (CIC) to sell its portion of their jointly owned Peace River Oil Partnership and assets in the Viking oil field. The two divestitures produce about 5,500 boe/day. Obsidian says it will use any proceeds to fund a share buyback program, pay down debt and accelerate development of its Cardium oil field. The company has also deferred plans for a reverse share split on the NYSE.

Husky Energy (HSE) CFO Jon McKenzie resigned his position this week and was simultaneously appointed as the new CFO at Cenovus Energy (CVE). McKenzie will replace Ivor Ruste at Cenovus, who will retire later this month. Husky has appointed Controller Jeff Hart as interim CFO and says it will provide an update on its five-year plan and 2022 targets at its 2018 Investor Day to be held at the end of May in Toronto.

Crescent Point Energy (CPG) says first quarter production and cash flow from its US assets have grown 60% and 175%, respectively. The company also says it has increased its position in the East Shale Duvernay area, now totaling over 355,000 net acres, acquired at about $315 per acre.

Pengrowth Energy (PGF) says its Lindbergh in-situ oil sands facility surpassed 16,000 bbl/day in April, up 11% from the beginning of the year. The company says it plans to drill eight infill wells in the second quarter, which should bring production to almost 18,000 bbl/day by the end of the year.

US ENERGY NEWS

This week's notable US energy news:

  • The Maryland Public Service Commission has approved the proposed US$4.5 billion merger between Calgary-based AltaGas (ALA) and Washington-based WGL Holdings (WGL). The merger faces one more approval from DC's Public Service Commission. Once completed, the combined company will have over $20 billion in energy infrastructure assets.
  • ConocoPhillips (COP) announced the sale of several non-core assets in the first quarter, valued at US$250 million. The company says impacts to production will be minimal.
  • According to Reuters, Baker Hughes (BHGE) is mulling a sale of its gas detection and metering business unit, worth an estimated US$900 million. The division makes sensors and monitors, primarily for the petrochemical and power sectors.
  • SM Energy (SM) announced the sale of the company's remaining assets in North Dakota's Williston Basin and Halff East assets in Texas for US$292 million. Buyers of the properties were not disclosed.
  • Midstates Petroleum (MPO) has agreed to sell several properties in the Anadarko Basin to an undisclosed buyer for US$58 million. The assets, located in the Texas panhandle and western Oklahoma produced 3,900 boe/day in the fourth quarter of last year. 

This week's US midstream news:

  • A Pennsylvania judge is recommending against the reversal of Buckeye Partners' (BPL) Laurel Pipeline. Laurel currently delivers refined products from Pennsylvania's New Jersey border to its border with Ohio. Reversal of the line's western section would redirect product to the middle of state. Buckeye claimed the reversal would lower fuel prices and reduce reliance on foreign imports. Opponents argued that East Coast refineries would lose market share in Pittsburgh, forcing the city to rely exclusively on Midwest supply. Pennsylvania's Public Utility Commission is set to make a final ruling on the reversal.
  • Energy Transfer Partners' (ETP), Boardwalk Pipeline Partners (BWP) and Oneok (OKE) lost some of their data communications systems this week after being hit by cyberattackers. The companies say none of their gas deliveries have been affected, although some data appears to be missing. No group has yet claimed responsibility for the attacks.

Around the world this week:

  • The Kingdom of Bahrain claims to have discovered over 80 billion barrels of tight oil and 10 to 20 trillion cubic feet of natural gas off its western coast, the largest ever find for the country. Halliburton (HAL) was awarded a contract to drill two more wells this year to better evaluate the reservoir and begin planning for long-term production. 
  • Statoil (STO) awarded new drilling contracts to Archer, KCA Deutag and Odfjell Drilling for work on the company's 18 fixed platforms on 10 offshore oil fields. The contracts are worth an estimated US$1.5 billion.
  • Royal Dutch Shell (RDS.A) has agreed to sell its entire stake in the Gaza Marine natural-gas field offshore Palestine to the Palestine Investment Fund. Terms were not disclosed.
  • Italian energy major Eni (E) is allegedly in talks to sell 20 to 35% of its Campeche Bay discovery off the coast of Mexico to Qatar Petroleum International. The company has divested US$9 billion in assets over the past four years in an effort to reduce its capital expenditures.
  • The government of Indonesia says Chevron (CVX) has submitted a proposal to extend its contract to operate the Rokan oil block in Indonesia beyond 2021. Rokan is Indonesia’s largest crude oil deposit. The company says it continues to work towards optimizing oil recovery and production from the property, which includes plans to drill six additional wells this year.
MARKET TECHNICALS
BULLISH INDICATORS
TSX
S&P 500
TOP 5
GAINERS
• Birchcliff Energy (BIR)
• Cenovus Energy (CVE)
• Crew Energy (CR)
• MEG Energy (MEG)
• Peyto Exploration (PEY)
• Andeavor (ANDV)
• Baker Hughes (BHGE)
• Murphy Oil (MUR)
• Occidental Petroleum (OXY)
• Valero Energy (VLO)
12-MO
HIGHS
• None • None
ALL-TIME
HIGHS
• None • None
GOLDEN
CROSSES
• None • None
BEARISH INDICATORS
TSX
S&P 500
TOP 5
LOSERS
• Enerplus (ERF)
• Ensign Energy Services (ESI)
• Gran Tierra (GTE)
• Pembina Pipeline (PPL)
• Trican Well (TCW)
• Cabot Oil & Gas (COG)
• Cimarex Energy (XEC)
• Concho Resources (CXO)
• Noble Energy (NBL)
• Range Resources (RRC)
12-MO
LOWS
• Enbridge (ENB)
• Ensign Energy Services (ESI)
• Imperial Oil (IMO)
• Paramount Resources (POU)
• Pembina Pipeline (PPL)
• TransCanada (TRP)
• Trican Well (TCW)
• Cimarex Energy (XEC)
• Exxon Mobil (XOM)
• Kinder Morgan (KMI)
• Williams Co (WMB)
ALL-TIME
LOWS
• None • None
DEATH
CROSSES
• Ensign Energy Services (ESI)
• MEG Energy (MEG)
• Vermilion Energy (VET)
• None
ANALYST RATINGS

UPGRADES

  • Baker Hughes (NYSE:BHGE): Upgraded from Neutral to Buy at BofA and from Neutral to Overweight at Piper Jaffray.
  • BP (NYSE:BP): Upgraded from Neutral to Buy at Citigroup.
  • EnLink Midstream Partners (NYSE:ENLK): Upgraded from Neutral to Overweight at JPMorgan.
  • Magellan Midstream Partners (NYSE:MMP): Upgraded from Hold to Buy at Jefferies Group.
  • Pasis Petroleum (NYSE:OAS): Upgraded from Neutral to Buy at Seaport Global Securities.
  • Schlumberger (NYSE:SLB): Upgraded from Hold to Buy at SunTrust Banks.
  • Transocean (NYSE:RIG): Upgraded from Hold to Buy at HSBC.

DOWNGRADES

  • EnLink Midstream (NYSE:ENLC): Downgraded from Neutral to Underweight at JPMorgan.
  • Parsley Energy (NYSE:PE): Downgraded from Buy to Hold at Seaport Global Securities.
  • Resolute Energy (NYSE:REN): Downgraded from Buy to Hold at Seaport Global Securities.
  • Range Resources (NYSE:RRC): Downgraded from Buy to Hold at Seaport Global Securities.
  • RSP Permian (NYSE:RSPP): Downgraded from Outperform to Hold at Credit Suisse Group and from Buy to Hold to Seaport Global Securities.
  • Sprague Resources (NYSE:SRLP): Downgraded from Neutral to Underweight at JPMorgan.
NEXT WEEK'S EVENTS

Monday:

Tuesday:

Wednesday:

Thursday:

Friday:

  • Summit of the Americas 2018 kicks-off in Lima, Peru
  • Baker Hughes Rig Count released @ 1:00pm ET
  • Last trading day for Edmonton Condensate, Cdn Light and Western Cdn Select (May contracts).
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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