Cdn crude prices get slaughtered as discounts to WTI go from wide to ridiculous
This week's US economic data:
U.S. consumer prices rose just 0.1% in September, less than expected due to a slower increase in the cost of rent and falling energy prices.
On an annualized basis, CPI is now up just 2.3% (down from a previous 2.7%) while core-CPI (ex-food and energy) remains at 2.2%.
Initial jobless claims increased 7,000 to a seasonally adjusted 214,000, still hovering near a 49-year low.
Despite adding duties on US$200 billion worth of Chinese imports, China's trade deficit with the US hit another record high of US$34.1 billion in September, bringing the 2018 deficit to almost US$226 billion so far year.
Tariffs imposed by the Trump Administration and a reduction in Chinese interest rates have pulled the yuan down 9% versus the greenback over the past 6 months.
The International Monetary Fund (IMF) cut its global growth forecast from 3.9% to 3.7% over the next two years, warning that the US-China trade war may have spillover implications, particularly on emerging markets.
After spiking higher last week, bond yields retreated this week, with the US 10-year returning to 3.15%. The US dollar declined 0.4% for the week, sending the Euro and the yen higher 0.4% and 1.3%, respectively. The loonie declined 0.7% due to widening differentials on Canadian crude streams.
This week's US supply update:
According to the Energy Information Administration (EIA), US crude production rose to a record 11.2 million bbl/day last week, with the output from the Lower 48 rising 100,000 bbl/day to 10.7 bbl/day, also a new record high. Crude stockpiles rose for the third week in a row as more refineries on the East Coast and Midwest come offline for maintenance.
The EIA also issued another upward revision its full-year production forecast, now expected at an average of 10.7 and 11.8 million bbl/day in 2018 and 2019, respectively. Expectations for natural gas production have also been increased to 82.7 and 87.7 Bcf/day for this year and next, up from an average of 74.8 Bcf/day in 2017.
According to Goldman Sachs, US shale oil production can comfortably continue to increase by 1 million bbl/day every year until 2021.
This week's supply/demand update from the International Energy Agency (IEA):
The IEA reduced their demand forecast by about 100,000 bbl/day for this year and next due to higher oil prices, ongoing trade concerns, a weaker economic outlook and downward revision in Chinese data. Demand is now expected to slow to 1.3 and 1.4 million bbl/day in 2018 and 2019, respectively.
The Paris-based agency also warns that global oil supply is "growing fast" with world oil production reaching 100 million bbl/day in September, up 2.6 million bbl/day from the same time last year, and outpacing demand through the latter half of the year.
The IEA estimates OPEC production at 1-year high of 32.78 million bbl/day in September, up 100,000 bbl/day from August and 735,000 bbl/day higher than last May, despite lower output from Iran and Venezuela.
Non-OPEC output is forecasted to increase by 2.2 million and 1.8 million bbl/day in 2018 and 2019, respectively, led by higher production out of the US.
OECD commercial stockpiles rose almost 16 million barrels in August, returning to their February high of 2.85 billion barrels.
This week's OPEC update:
OPEC says oil markets are currently "well supplied" and likely even oversupplied going into the final quarter of this year and into 2019.
The cartel says it produced 32.76 million bbl/day in September, up 132,000 bbl/day from August.
OPEC also cut its 2018 and 2019 demand growth forecast to 1.54 and 1.36 million bbl/day, respectively.
According to Reuters, Iran exported just 1.1 million bbl/day of crude in the first week of October, down 500,000 bbl/day from the previous month and almost 1.4 million bbl/day lower than last spring. According to OPEC, the country produced 3.58 million bbl/day in August, down 150,000 bbl/day from July.
According to Baker Hughes, the US added 8 new oil rigs this week, bring the total to 869, the highest since the spring of 2015. Canada also added 8 oil rigs, rising to a total of 127.
Natural gas inventories rose for the 24th week in row, in preparation for the upcoming heating season. The US and Canada added 9 new natural gas rigs this week, bringing the combined total to 261.
World oil prices posted their first weekly decline in over a month, with Brent and WTI falling about 4%. Canadian crude prices got slaughtered this week, as differentials to WTI widened to ridiculous levels.
Western Canadian Select (WCS) tumbled 20%, ending Friday at just under US$26, the lowest since mid-2016. The discount to WTI widened to a record US$45.45 at the end of the week. Canadian Light also declined 10% as the discount increased to over US$27 a barrel.
After a good run for much of the summer, global equity markets pulled back sharply this week. The Shanghai Exchange declined almost 8% while European markets fell almost 5%. In the US, small caps (-5.2%) and Dow Transport stocks (-6.4%) lead to the downside.
President Trump blamed this week's market meltdown squarely on the US Federal Reserve, which has repeatedly telegraphed intentions to raise US interest rates well into 2019.
Aside from gold and pot stocks, most TSX components ended the week lower, led by a 6.7% decline in the energy sector. All US sectors also declined for the week, sending the S&P 500 down 4.1%, including a 5.4% decline in US energy components.
Canadian energy producers were the worst hit among TSX energy component this week, falling an average of 7.5%. Parkland Fuel (PKI) bucked the trend, gaining over 8%, hitting another record high.
On US energy markets, declines were more broadly based across all subsectors. Refining stocks were the worst performers, falling 6.7% due in part to a 7% decline in gasoline prices.
According to HSBC, capital expenditure among the world’s largest oil companies is expected to rise to US$140 billion by 2021, up from the current US$100 billion, but well below the 2014 high of US$200 billion. Despite higher oil prices, oil majors are now fishing for returns closer to 20% for major oil and gas projects, as companies remain very conservative in their growth plans and choose to divert excess cash flow in share buybacks and dividends. Mergers and acquisitions are also proving to be a quick and easy path to boost production, reserves and PE ratios. M&A activity in the energy patch totalled about US$360 billion last year and currently stands at about US$280 billion so far in 2018. Less spending and higher oil prices should all translate into healthier profits in the near term.
|Imperial Oil||IMO||42.72||▼-2.0||33.43||44.91||93||D W|
|Husky Energy||HSE||20.25||▼-3.4||15.09||22.99||83||D W|
|Pembina Pipeline||PPL||43.93||▼-3.3||37.60||47.84||87||D W|
|Inter Pipeline||IPL||21.66||▼-3.3||21.36||27.92||23||D W|
|Gibson Energy||GEI||20.93||▼-2.6||15.68||21.64||96||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||37.85||▼-8.4||36.88||49.08||12||D W|
|Cenovus Energy||CVE||11.42||▼-12.6||9.03||14.84||19||D W|
|Seven Generations||VII||15.28||▼-5.8||13.62||21.25||35||D W|
|Pason Systems||PSI||20.11||▼-2.4||16.05||22.10||87||D W|
|Mullen Group||MTL||14.82||▼-3.9||14.10||17.12||46||D W|
|Secure Energy||SES||7.93||▼-6.0||6.98||9.82||58||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||45.96||▲8.4||23.41||46.46||98||D W|
|Exxon Mobil||XOM||81.38||▼-4.6||72.16||89.30||68||D W|
|Kinder Morgan||KMI||17.51||▼-3.0||14.69||19.83||76||D W|
|Williams Co||WMB||26.68||▼-3.4||24.00||33.67||55||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||122.18||▼-6.8||95.36||133.53||85↓||D W|
|Occidental Petroleum||OXY||76.96||▼-5.5||62.47||87.67||65||D W|
|Anadarko Petroleum||APC||67.63||▼-2.2||46.75||76.70||86||D W|
|Concho Resources||CXO||150.43||▼-4.9||123.63||163.11||76||D W|
|National-Oilwell Varco||NOV||41.91||▼-6.1||31.47||49.08||72||D W|
|Baker Hughes||BHGE||30.85||▼-3.3||25.53||37.76||39||D W|
|Phillips 66||PSX||109.46||▼-7.5||89.14||123.97||61↓||D W|
|Valero Energy||VLO||108.25||▼-7.6||75.84||126.98||59||D W|
|Marathon Petroleum||MPC||80.08||▼-5.2||55.68||88.45||73||D W|