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Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending November 17, 2017:
  • Equity markets consolidate after two months of gains
  • US yield curve drops to record low
  • Oil prices suffer first decline in 5 weeks
  • Heavy oil discount widens on Keystone outage
  • WTI discount to Brent narrows to less than US$6
  • Energy stocks drag indices lower on both sides of the border.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • Canada's Consumer Price Index (CPI) barely budged in October, dropping the full-year inflation rate to 1.4%. Gasoline prices rose 6.5% y/y in October, after rising 14.1% in September.
  • Manufacturing sales rose 0.5% in September to $53.7 billion, reflecting higher sales volumes and higher prices for energy products.

Stateside, the Republican tax plan passed the House and now heads to the Senate, giving markets and short-term bond yields a boost on Thursday. Another mixed bag in economic data was released this week, as positive industrial production, manufacturing and housing data offset weak retail sales and feeble inflation numbers.

Short-term yields continue to move higher in the US while long term yields declined again this week, bringing the yield curve to a new record low.

Positive economic data out of the EU, particularly Germany, help perk up the Euro this week. The Euro and the Yen were this week's best performing currencies, each gaining over 1%, dragging the US dollar lower.

OIL & GAS PRICES (USD)

Oil prices suffered their first weekly decline in 5 weeks, blamed in part on a downward revision of global demand from the International Energy Agency (IEA). 

The heavy oil discount widened from about US$14 to US$15.60/bbl after TransCanada shut-in its Keystone pipeline from Alberta to Cushing and the US Midwest.

The WTI discount to Brent narrowed slightly this week, falling below US$6/bbl. Backwardation has returned to the WTI futures curve. Brent futures remains firmly in backwardation through the end of next year.

The US Energy Information Administration (EIA) reported its second consecutive weekly build in crude oil inventories last week and another production record, nearing 9.65 million bbl/day on rising output out of the Lower 48. Crude imports from Canada rose to 3.4 million bbl/day, still recovering from the lows of late October.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

NOV 15, 2017

EIA REPORTS ANOTHER RISE IN CRUDE INVENTORIES AND HIGHER DOMESTIC PRODUCTION

 
What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
NEUTRAL
No new news on the geopolitical front this week.
USD INDEX
▲ BULLISH
The US dollar retreated almost 1% this week, the second consecutive weekly decline.
SUPPLY
▼ BEARISH
The IEA warned non-OPEC production would expand by 1.4 million bbl/day in 2018. Saudi Arabia reiterated intentions to extend production cuts past next March. US crude production now up 1.2 million bbl/day from lows of Oct 2016. A temporary disruption of Cdn heavy crude supply into the US helped WTI prices recover losses and weakened WCS.
DEMAND
▼ BEARISH
The IEA cut its oil demand growth forecast by 100,000 bbl/day for both 2017 and 2018 to an estimated 1.5 million bbl/day and 1.3 million bbl/day, respectively. The agency sees oversupply in oil markets leading into next spring.
SENTIMENT
▲ BULLISH
Energy markets continue to see record long positions, particularly in Brent, gasoline and heating oil.
EQUITY MARKETS

US equity markets continue to consolidate from two months of gains. The tech-heavy NASDAQ was a notable exception, reaching another record high on Thursday. European and Asian markets also ended the week mostly lower.

SECTORS

Markets remain offensive as financial stocks hit a record high on the TSX while the discretionary sector stocks hit a new high on the S&P 500.

ENERGY SECTOR PERFORMANCE

Energy stocks were once again the biggest drag on equity markets this week, declining 5% in Canada and over 3% in the US.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

This week's notable Canadian energy news:

  • In this week's 2018 corporate guidance, Suncor Energy (SU) says it plans to spend $750 million less in capital next year but produce about 10% more oil due to the start-up of Fort Hills and Hebron. Next year's capital spending program is expected to be between $4.5 to $5.0 billion while full-year production guidance is between 740,000 and 780,000 boe/day.
  • Cenovus Energy (CVE) has agreed to sell its Weyburn facility in southern Saskatchewan for $940 million to Whitecap Resources (WCP). This latest sale will allow the company to repay its $3.6 billion bridge loan in its entirety. Billionaire fund manager George Soros also disclosed the purchase of 1.2 million CVE shares during the third quarter.
  • Obsidian Energy (OBE) has agreed to pay $8.5 million to the US Securities and Exchange Commission (SEC) for accounting violations committed between 2012 and 2014. The company formerly known as Penn West Petroleum does not admit or deny the allegations.
  • Enbridge (ENB) has filed for a mixed shelf offering of up to US$4.9 billion, consisting of both equities and debt securities.
  • The TSX has approved Birchcliff Energy's (BIR) plan to buy-back up to 20.1 million of its shares, representing 10% of public float.
  • Seven Generations Energy (VII) has reduced its 2017 production guidance to 175,000 to 180,000 boe/day due problems at its natural-gas operations. 2018 capital spend has been increased 6.3% to $1.7 billion. The company plans to boost production to 200,000 boe/day next year, rising to 240,000 boe/day by 2019 and over 300,000 boe/day by 2022.

A sea of red in the Canadian energy patch this week. Inter Pipeline (IPL) and Bonavista Energy (BNP) were the only notable exception, gaining almost 1% for the week. New 52-week highs on the TSX this week include Suncor (SU) and Calfrac Well Service (CFW). New 52-week lows include Bellatrix Exploration (BXE), Enbridge (ENB), Enerflex (EFX)Ensign Energy Services (ESI), Peyto Exploration & Development (PEY) and Seven Generations Energy (VII).


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

This week's notable US and global energy news:

  • Anadarko Petroleum (APC) announced a 2018 capital expenditure program of US$4.2 to US$4.6 billion next year, about US$1.1 billion dedicated to its deepwater Gulf of Mexico properties. The company also says it plans to complete another US$1.5 billion in share buybacks next year.
  • Norway's central bank is asking the country's finance ministry to consider divesting oil and gas holdings from its US$1 trillion sovereign wealth fund to avoid double-exposure to a collapse in crude prices. Oil majors represents about 6% of the funds total holdings, or roughly US$37 billion. Top holdings include Shell (RDS.A), BP (BP), Chevron (CVX), ExxonMobil (XOM), Eni (ENI) and Total (TOT). The fund also holds several billion in several Canadian energy stocks, including US$542 million in Suncor (SU), US$314 million in Enbridge (ENB), US$286 million in Canadian Natural Resources (CNQ), US$116 million in Cenovus (CVE) and about US$106 million in Imperial Oil (IMO).
  • Royal Dutch Shell (RDS.A) struck a deal with two investment banks to sell its entire stake in Woodside Petroleum (ASX:WPL), valued at about US$2.7 billion. This latest sale brings total divestitures at the Dutch oil major to US$25 billion. Shell still owns about 98 million shares in Canadian Natural Resources (CNQ) and will likely sell shares sometime in the near future.
  • BP (BP) announced plans to buy back up to 1.96 billion shares between now and its next Annual General Meeting next spring.

US energy stocks ended the week mostly lower this week. New 52-week high on the S&P 500 include Cabot Oil & Gas (COG) and Valero Energy (VLO). New 52-week lows this week include Kinder Morgan (KMI), Schlumberger (SLB) and Williams Cos (WMB).


UPGRADES & DOWNGRADES

UPGRADES

  • Anadarko Petroleum (NYSE:APC): Upgraded from Market Perform to Outperform at BMO Capital Markets.
  • Baytex Energy (TSX:BTE): Upgraded from Hold to Buy at GMP Securities.
  • Obsidian Energy (TSX:OBE): Upgraded from Market Perform to Outperform at Raymond James.
  • Occidental Petroleum (NYSE:OXY): Upgraded from Neutral to Buy at Goldman Sachs.
  • Shawcor (TSX:SCL): Upgraded from Underperform to Sector Perform at Scotiabank.

DOWNGRADES

  • Bonavista Energy (TSX:BNP): Downgraded from Outperform to Sector Perform at Scotiabank and from Market Perform to Underperform at Raymond James.
  • Calfrac Well Services (NYSE:CFW): Downgraded from Outperform to Sector Perform at Scotiabank.
  • Canacol Energy (TSX:CNE): Downgraded from Sector Perform to Neutral at CIBC World Markets.
  • Cenovus Energy (TSX:CVE): Downgraded from Outperform to Sector Perform at Scotiabank.
  • Cimarex Energy (NYSE:XEC): Downgraded from Positive to Neutral at Susquehanna.
  • FMC Technologies (NYSE:FTI): Downgraded from Buy to Neutral at Goldman Sachs Group.
  • MEG Energy (TSX:MEG): Downgraded from Outperform to Sector Perform at Scotiabank.
  • Phillips 66 (NYSE:PSX): Downgraded from Equal Weight to Underweight at Barclays.
  • RMP Energy (TSX:RMP): Downgraded from Sector Perform to Underperform at Raymond James.
  • Schlumberger (NYSE:SLB): Downgraded from Conviction Buy to Buy at Goldman Sachs Group.
  • Statoil (NYSE:STO): Downgraded from Outperform to Market Perform at BMO Capital Markets.
  • Suncor Energy (TSX:SU): Downgraded from Buy to Hold at TD Securities.
  • Surge Energy (TSX:SGY): Downgraded from Restricted to Neutral at CIBC World Markets.
  • Trican Well Service (TSX:TCW): Downgraded from Buy to Hold at TD Securities.
  • Valero Energy (NYSE:VLO): Downgraded from Buy to Hold at Standpoint Research.
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
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