Weekly Energy Market Review

Weekly Energy Market Review

Energy market summary for the week ending July 14, 2017:
  • Soft US economic data sends the greenback lower, boosting commodity prices, particularly energy.
  • Western Canadian Select posts a 9% gain on a strong Canadian dollar and narrowing of heavy oil discount.
  • US markets power to new highs as interest rates likely to remain lower for longer.
  • TSX rallies 1% for the week but remains one of the weakest markets globally.
  • Despite this week's gain in oil prices, global banks and investment firms continue to lower expectations for future Brent and WTI prices.

The Bank of Canada (BoC) increased the overnight lending rate to 0.75% this week, citing a strengthening global economy, a robust labour market and strong household spending. The BoC expects a GDP growth rate of 2.8% this year, falling to 2.0% in 2018 and just 1.6% in 2019. The IMF was less than impressed with the hike, reminding the government of pending NAFTA negotiations, sky-high mortgage debt and the potential for a border-adjustment tax. Economists peg the chances of another rate hike this fall at 58%. 

The US posted weak inflation and retail sales data this week, sending treasuries higher, dragging yields and the US dollar lower. US inflation data has been below expectations for the past four years, due in part to falling energy prices.

A lower greenback and threats of another BoC rate hike in the fall powered the loonie to a 14-month high.


The heavy oil discount narrowed to just over US$9/bbl this week, helped by a strengthening Canadian dollar and news that Syncrude has once again cut production by about 3 million barrels for the rest of July. Edmonton condensate is now roughly on par with WTI.

A number of banks and investment firms released adjusted oil price targets this week:

  • Scotiabank lowered its WTI forecast to US$51/bbl in 2017, rising to US$53 next year. The bank also says its outlook for natural gas has slightly weakened, lowering its Henry Hub forecast to US$3.10/MMBtu this year and US$2.95 in 2018.
  • Meanwhile, the team over at Goldman Sachs is much less optimistic, warning that oil prices might fall below US$40/bbl unless OPEC and partners agree to deepen production cuts. Goldman cut its WTI forecast from US$55 to US$47.50 over the next three months. 
  • BNP Paribas cut its Brent forecast by a whopping US$9 to US$51 in 2017 and US$48 for next year, US$15 lower than its previous 2018 forecast.
  • Barclays also cut its 2017 and 2018 Brent forecasts to US$52 a barrel for both years, down from US$55 and US$57, respectively.
  • Citigroup bucked the trend this week, predicting that demand and lower OPEC output should push oil prices closer to US$60 by year end.

The US Energy Information Administration (EIA) released a rather positive weekly petroleum inventory report on Wednesday. Higher exports and lower imports help reduce crude inventories by over 7 million barrels.



JULY 12, 2017



The TSX recovered 1% this week, reversing declines of the previous week. The Canadian index now sits just under its 200-day moving average, and remains one of the worst performing markets globally.

US markets had a spectacular week, with most ending Friday at a new record high. Emerging markets also posted strong gains, powering the FTSE All World index to a new all-time high.


  • Higher commodity prices helped boost energy and materials stocks on both sides of the border.
  • Technology, industrials and  materials sectors reached new highs on US exchanges this week (note that the US materials sector is less weighted towards mining stocks versus the TSX).
  • The potential for higher interest rates also dragged utility stocks lower in Canada.
  • A flattening yield curve in the US held back financial stocks on the S&P 500.
  • Energy stocks rallied on both sides of the border. The Canadian energy sector gained almost 3%, regaining some of the ground lost last week.
  • Despite this week's good performance, TSX energy stocks continue to underperform their US counterparts, due to weakness in service stocks and lack of independent refiners, which remains one of the strongest sub-sectors on the S&P 500.


Cenovus Energy (CVE) says it expects to raise as much as $2.5 billion from the sale of its Weyburn and Palliser assets, about half of the $5 billion it hopes to divest. A deal is expected to be announced sometime in the fourth quarter. No word yet on the Pelican Lake and Suffield conventional oil and gas assets, which are also up for sale.

Veresen (VSN) shareholders have almost unanimously approved (99%) merging with Pembina Pipeline (PPL). Under terms of the agreement, Pembina will acquire all outstanding common shares of Veresen in exchange for either 0.4287 PPL shares or $18.65 in cash.

Pengrowth Energy (PGF) announced the sale of its Olds/Garrington area assets in Central Alberta to an unspecified buyer for $300 million. The assets produce about 14,000 boe/day. The company says the sale will help it reduce debt and focus more attention on its Lindbergh thermal project and Groundbirch Montney play.

Vermilion Energy (VET) has partnered with the Canada Pension Plan Investment Board (CPPIB) on their recent purchase of Shell's 45% stake in Ireland's Corrib offshore gas field. CPPIB has agreed to sell Vermilion another 1.5% stake in the project for $22 million, bringing Vermilion's ownership to 20%. Vermilion will take over operation of the facility, formerly run by Shell's Irish subsidiary. Statoil retains the remaining 36.5%.

Aside from the service sector, energy stocks generally posted a nice rally this week. Encana (ECA) and MEG Energy (MEG) were the best performers, gaining almost 11% for the week. Husky Energy (HSE), Precision Drilling (PD), Pengrowth Energy (PGF), Obsidian Energy (OBE), Bellatrix Exploration and Athabasca Oil Corp (ATH) all reached 52-week lows on the TSX this week.

Second quarter earnings season kicks-off next week with both Husky and Encana expected to report on Friday.


Credit ratings agency S&P Global is warning that they may need to downgrade a number of oil majors if WTI doesn't top US$50 and/or the companies don't execute deeper cost cuts. Companies currently on the watch list include ExxonMobil (XOM), Chevron (CVE) and Total (TOT).

BP (BP) CEO Bob Dudley says he doesn't expect oil prices to rise much from here, planning for about US$50 oil for the next five years. Dudley says he's working on lowering breakeven costs "well into the 30s."

Devon Energy (DVE) says it produced a record 6,000 boe/day peak production rate out of its STACK well, located in Oklahoma. The company says it thinks the well has the potential to produce over two million barrels of oil equivalent (boe) over its life. Devon has allocated US$750 million to the STACK assets, which produced about 93,000 boe/day in 2016, weighted about 50% liquids.

Marathon Oil (MRO) is issuing US$1 billion in new notes, maturing in 2027. The company says it will use the proceeds to buy back near term notes due in 2017, 2018 and 2019.

California's Attorney General is seeking to block Valero Energy (VLO) and partner Plains All American (PAA) from purchasing two petroleum storage and distribution terminals in the Bay area on grounds of anti-competitiveness. Valero and PAA say they will "vigorously defend" the transaction, noting that the two companies do not directly compete with each other in the state of California.

Magellan Midstream Partners (MMP) shutdown its Longhorn pipeline system this week after a contractor accidentally hit a fitting, spilling 1,200 barrels of crude. Magellan says clean-up activities are in progress but did not provide guidance on restart of the system.

Halcón Resources (HK) has sold various assets in the Williston Basin to an affiliate of Bruin E&P Partners for US$1.4 billion in cash. The assets currently produce about 29,000 boe/day (net).

Refining stocks were the weakest performers in US markets this week. Despite that fact, Tesoro Petroleum (TSO) managed to eek out another 52-week high. Kinder Morgan (KMI) and Schlumberger (SLB) are expected to release second quarter earnings next week.



  • Athabasca Oil (TSX:ATH): Upgraded from Buy to Speculative Buy at Canaccord Genuity.
  • EQT (NYSE:EQT): Upgraded from Sector Perform to Outperform at Scotiabank.
  • Exxon Mobil (NYSE:XOM): Upgraded from Equal Weight to Overweight at Barclays.
  • Imperial Oil (TSX:IMO): Upgraded from Equal Weight to Overweight at Barclays.
  • Paramount Resources (TSX:POU): Upgraded from Sector Perform to Outperform at National Bank Financial.


  • Bellatrix Exploration (TSX:BXE): Downgraded from Speculative Buy to Hold at Canaccord Genuity.
  • Husky Energy (TSX:HSE): Downgraded from Overweight to Hold at Barclays. 
  • Murphy Oil (NYSE:MUR): Downgraded from Overweight to Equal Weight at Barclays. 
  • Pengrowth Energy (TSX:PGF): Downgraded from Speculative Buy to Hold at Canaccord Genuity.
  • Plains All American Pipeline (NYSE:PAA): Downgraded from Buy to Hold at Deutsche Bank.
  • Statoil (NYSE:STO): Downgraded from Overweight to Neutral at JPMorgan.
  • Sunoco (NYSE:SUN): Downgraded from Neutral to Underperform at Mizuho.
  • Tamarack Valley Energy (TSX:TVE): Downgraded from Buy to Hold at Canaccord Genuity.
Weekly Energy Market Review

Weekly Energy Market Review

Weekly Energy Market Review

Weekly Energy Market Review