Weekly Energy Market Review

Weekly Energy Market Review

Energy market summary for the week ending July 7, 2017:

  • Money continues to flow out of treasuries this week, on expectations of higher interest rates in North America.
  • Despite a strong inventory report and record product consumption, oil prices were unable to hold on to last week's rally, with WTI breaking below US$45/bbl.
  • Natural gas also had a bad week, shedding over 5%.
  • The energy sector continues to be the worst performing group, now reaching 12-month lows on both sides of the border.
  • Canadian energy stocks are down an average of 25% from the highs of last year, while US energy stocks are down about 15% for the same time.

Money continued to flow out of treasury markets this week on the prospects of rising interest rates around the world. Commodities reversed sharply, giving back some of the gains of last week. The US dollar also managed to bounce off support levels, temporarily halting the decline that began last December.


Bank of Canada (BoC) Governor Stephen Poloz continues to drop hints that interest rates are set to rise in Canada, this time speaking to a German newspaper. Poloz says inflation should be well into an uptrend by the beginning of next year and the recent decline in oil prices are no cause for concern just yet. The next BoC interest rate decision is on July 12.

Record imports and exports widened Canada's trade deficit to $1.1 billion in May, up from $552 million in April. Despite lower prices, imports of energy products rose 6.5% to $2.8 billion, led by much higher volumes of refined products (+16.5%), including gasoline and diesel.

Statistics Canada reported another decent jobs report for the month of June, mostly part-time and mostly in Quebec and BC. Alberta lost 11,400 full-time positions but gained 19,000 part-time jobs, bringing the unemployment rate down from 7.8% to 7.4%. Professional and technical services also had a good month, adding 27,000 new positions. The national unemployment rate declined from 6.6% to 6.5%.

In the US, non-farm payrolls increased by 222,000 jobs in June, far better than economists were expecting. Average hourly earnings rose 0.2% while the unemployment rate increased from 4.3% to 4.4% as more people enter the labour market. Rather bullish manufacturing data was also reported earlier in the week. The better-than-expected data sent medium and long duration bond yields higher, steepening the yield curve once again this week.


Raymond James is sticking with their bullish call on oil prices, calling all the recent negative press "fake news." The analysts blame the recent decline on a technical breakdown of price charts, fuelled by an endless stream of bad news, including weakening demand, rising production from US shale, Nigeria and Libya, floating storage stockpiles and the rise of EVs. About a year ago, the investment firm predicted oil would reach US$80 by the end of 2016 on lower production and strong demand for gasoline.

ScotiaBank has revised their expectations for WTI to an average of US$51 this year, rising to $53/bbl in 2018. Brent is expected to average US$53 and US$56, respectively. Morgan Stanley says it expects WTI to remain below US$50 until the middle of next year.

Oil rig counts increased in the US again this week, although the rate of increase appears to be slowing. In Canada, the number of rigs in service declined by 7 to 105, while the number of gas rigs also declined by 7 to 70. US inventories fell across the board last week, including crude, gasoline and distillates, as product consumption reached a record high.



JULY 6, 2017


The TSX was once again once of this week's worst performers, declining another 1% and breaking below its 200 day moving average.

The NYSE and large cap Dow Jones indices both hit intraday record highs on Monday, before pulling back later in the week.



Financials were once again the big winners this week on both sides of the border on the prospects of rising interest rates.

The energy sector continues to be the weakest group, reaching a 12-month low on both the TSX and S&P 500.


Canadian energy stocks continue to underperform their US counterparts this week, now down over 25% from the highs of last December. In contrast, US energy stocks are down about 15% for the same time frame.


Both Imperial Oil (IMO) and Husky Energy (HSE) reached 52-week lows on the TSX this week.


Secure Energy Services (SES) has replaced $700 million in outstanding loans with a $470 million first lien credit facility led by ATB and second lien credit facility of $130 million led by the National Bank. The company says the new structure will reduce costs associated with standby fees on undrawn credit, while maintaining sufficient liquidity. 

Oil field service stocks had another ugly week. Precision Drilling (PD), ShawCor (SCL) and Western Energy Services (WRG) all hit new 52-week lows.


Veresen (VSN) closed on the sale of two-thirds of its power assets this week, with the remaining one-third expected to close in the third quarter. The company will update its 2017 guidance once all transactions have closed. Veresen announced the sale of its entire power business for $1.18 billion back in February.

Pembina Pipelines (PPL) announced the start-up of $2.8 billion worth of projects at the end of June, including the Canadian Diluent Hub, a third fractionator at its Redwater facility and 900 km of new piping stretching from Taylor, BC to Gordondale and Fox Creek, Alberta. The company plans to put another $3 billion worth of projects into service by the end of next year.


Tourmaline Oil (TOU) says it still expecting record Q2 production volumes in the range of 235,000-240,000 boe/day. June was a rough month for the company when it was forced to curtail production due to problems with third-party pipelines. However, Tourmaline says it still remains on track to meet its full-year production guidance of 240,000-260,000 bbl/day.

Seven Generations Energy (VII) says it is on track to grow its production more than 50% this year to an average of 180,000 to 190,000 boe/day. Q2 production is expected to average 164,000 boe/day but operating costs are expected to rise by about $1.50/boe.

Among the large cap producers, Canadian Natural Resources (CNQ), Cenovus (CVE), Crescent Point (CPG), Vermilion Energy (VET) and Seven Generations (VII) all reached 52-week lows on the TSX this week.


Birchcliff Energy (BIR), MEG Energy (MEG), and Peyto Exploration (PEY) all reached 52-week lows this week.


Bellatrix Exploration (BXE) completed its 5-for-1 reversed stock split this week, reflected in its new share price. The reverse split enables the company to retain its listings on both the TSX and NYSE. Bellatrix stock hit a new low on the TSX this week, sinking another 15%.

Paramount Resources (POU) announced it will acquire all of Trilogy Energy's (TET) outstanding shares, on a basis of 1 Paramount share per 3.75 Trilogy Shares.

This weeks 52-week lows among the small cap producers include Athabasca Oil Corp (ATH), Baytex Energy (BTE), Gran Tierra (GTE) and Obsidian Energy (OBE).


Raymond James is warning that a potential shutdown of the Groningen gas field in the Netherlands would almost wipe out ExxonMobil's (XOM) total organic growth through 2020. The Dutch government has cut production at Groningen due to earthquakes in the region, but says it is unsure what level of production is safe. Activists are calling for a full shutdown of gas production from the region. Groningen is a 50/50 JV between Exxon and Royal Dutch Shell (RDS.A).

Tesoro Corp (TSO) reached another 52-week high on the NYSE this week. Refiners continue to be the best performing subsector among energy stocks.


Baker Hughes began trading as a division of GE this week, under the new ticker symbol BHGE. The new Baker Hughes becomes the world's second largest oil field service provider, after Schlumberger (SLB), now surpassing Halliburton (HAL). Holders of the old Baker Hughes stock (BHI) were paid-out a one time dividend of US$17.50 per share (hence the 30% drop in share prices). Parent company GE owns 62.5% of the new company.

Halliburton (HAL) announced the acquisition of Tulsa-based Summit ESP, a provider of electric submersible pumps. Halliburton says the deal will "expand the company's existing artificial lift capabilities" and "deliver leading returns" to its shareholders.

Schlumberger (SLB) reached a new 52-week low on the NYSE this week. However, all energy service providers are hovering near 12-month lows.


Houston-based Apache Corp (APA) announced their "strategic exit from Canada" this week, selling its Canadian subsidiary to Paramount Resources (TSX:POU) for $459.5 million and its Prevost assets in Alberta to an undisclosed buyer. A few weeks back, Apache sold its Midale and Mountain House assets to Cardinal Energy (TSX:CJ) for $300 million. The three transactions are worth $927 million (US$713 million). The company says the divestitures are part of its plan to streamline its portfolio.

Anadarko Petroleum (APC) says it has restored production at about 30 vertical wells which were temporarily shut-in after a leak on an abandoned gas line sparked a fatal home explosion in Firestone, CO. The wells produce about 200,000 boe/day.

Both Apache and Anadarko hit new 52-week lows on the NYSE this week, as did Devon Energy (DVN) and Noble Energy (NBL).


Jana Partners is accusing EQT Corp's (EQT) board of directors of paying way too much for Rice Energy (RICE). The investment firm says the company could save as much as $4.5 billion by splitting out its pipeline assets instead. EQT announced a plan to buy Rice in June for $6.7 billion in cash and stock, creating the largest natural gas producer in the US. Jana has a 5.8% stake in EQT.

This weeks 52-week lows on the NYSE include Newfield Exploration (NFX) and Cimarex Energy (XEC).

  • Athabasca Oil (TSX:ATH): Downgraded from Outperform to Market Perform at Raymond James.
  • Baytex Energy (TSX:BTE): Downgraded from Market Perform to Underperform at Raymond James.
  • Cenovus Energy (TSX:CVE): Downgraded from Market Perform to Underperform at Raymond James.
  • Chevron (NYSE:CVX): Downgraded from Sector Perform to Underperform at RBC. 
  • ConocoPhillips (NYSE:COP): Downgraded from Outperform to Market Perform at Bernstein.
  • Devon Energy (NYSE:DVN): Downgraded from Outperform to Market Perform at Bernstein.
  • Encana (TSX:ECA): Upgraded from Outperform to Strong Buy at Raymond James.
  • ExxonMobil (NYSE:XOM): Downgraded from Outperform to Sector Perform at RBC.
  • Imperial Oil (TSX:IMO): Downgraded from Outperform to Market Perform at Raymond James.
  • Marathon Oil (NYSE:MRO): Upgraded from Neutral to Buy at Citigroup.
  • Pengrowth Energy (TSX:PGF): Downgraded from Market Perform to Underperform at Raymond James.
Weekly Energy Market Review

Weekly Energy Market Review

Weekly Energy Market Review

Weekly Energy Market Review