Market rotation continues as traders turn defensive

Market rotation continues as traders turn defensive

WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • President Trump backtracked from earlier threats of retaliation against Saudi Arabia over the presumed death of a Washington Post journalist.
  • Turkey and China have joined India in their quest to obtain US waivers for maintaining imports of Iranian crude after the reinstatement of sanctions on November 4th.
USD INDEX
NEUTRAL
  • The US dollar rose earlier in the week, but gave back most of those gains on Friday, ending the week up just 0.6%, and remaining in its recent trading range.
SUPPLY
BEARISH
  • Russia says they are no longer capping oil production, as per their 2016 agreement with OPEC. The country says output could rise another 300,000 bbl/day next year, up from the current 11.4 million bbl/day.
  • According to Reuters, Saudi Arabia added 524,000 bbl/day of production over the past 6 months, offsetting a loss of 376,000 bbl/day from Iran. Output from Venezuela and Angola declined a total of 200,000 bbl/day, bringing OPEC's net production increase to about 628,000 bbl/day. Russian output also increased 389,000 bbl/day.
DEMAND
NEUTRAL
  • China reported weak third quarter GDP numbers this week, as growth slows to the lowest since the 2009 financial crisis.
  • Despite the sluggish economic data, Chinese refinery throughput hit a record 12.49 million bbl/day of crude in September.
SENTIMENT
NEUTRAL
  • Futures curves on both Brent and WTI have flattened considerably in recent weeks, as fears of short-term supply constraints fades.
  • Traders are turning more cautious, as net longs continue to unwind. Long positions on managed money contracts declined again this week, particularly for Brent, while a significant number of new short positions were added, particularly for WTI.
  • Although oil price have corrected from the peak of early October, the trend remains solidly bullish, with both Brent and WTI holding firmly above their respective 200-day moving averages.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • The consumer price index (CPI) declined 0.4% in September, mostly due to cheaper airfares and lower gasoline prices. The annualized inflation rate fell from 2.8% to 2.2%.

  • Retail sales declined 0.1% in August, to $50.8 billion. Lower sales at gasoline stations offset gains in auto and auto parts.

  • After three months of increases, manufacturing sales fell 0.4% to $58.6 billion in August, mostly on lower auto sales. Capacity utilization rose from 79.5% in July to 80.2% in August.

  • The number of Canadians collecting Employment Insurance (EI) benefits in August declined 1.6% to 464,700. Declines were seen in most provinces, except Ontario. Year-over-year, 62,000 fewer Canadians are collecting EI.

This week's notable US economic data:

  • Retail sales rose 0.1% in September, mostly on higher auto and gasoline sales.

  • After a 0.4% increase in August, industrial output increased 0.3% in September. Manufacturing and mining both gained ground, while energy was unchanged for the month.

  • Existing home sales fell 3.4% in September, the sixth consecutive monthly decline, while new housing starts fell 5.3%.

Latest FOMC meetings minutes released this week confirm the trajectory towards higher interest rates in the US. In previous years, planned rate hikes by the Federal Reserve have been shelved during times of market upheaval, which is often precipitated by rising interest rates, and tends to drag on consumer confidence.

US bond yields rose across the board this week, dragging bond prices lower on both sides of the border. The US dollar rebounded 0.6%, pulling all major foreign currencies lower. The loonie also fell 0.6%, as markets await another rate hike from the Bank of Canada next week.

SUPPLY & DEMAND UPDATES

Gazprom says the Russia's energy ministry has effectively called an end to their pact with OPEC to restrain production. At the end of 2016, Russia agreed to reduce output by 300,000 bbl/day, as per their agreement with OPEC. Russia produced a record 11.4 bbl/day in September. President Vladimir Putin says output could potentially rise by another 300,000 bbl/day next year.

US output declined by 300,000 bbl/day last week, due to outages in the Gulf of Mexico due to Hurricane Michael.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

Oct 17, 2018

CRUDE STOCKPILES CONTINUE TO RISE, GAINING ANOTHER 6.5 MILLION BARRELS LAST WEEK

 

The US put four more oil rigs into service this week, bringing the total to 873, the highest since the spring of 2015. Canada lost four oil rigs, ending Friday at 123.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
79.78
69.12
58.87
44.12
24.87
56.25
50.60
52.43
43.17
24.87
86.29
76.41
71.40
69.32
56.21

Desjardins is maintaining its WTI forecast at US$68 on average for this year, rising to US$72 for 2019. The firm says risks to oil prices are "more on the upside," despite ongoing trade disputes between China and the US.

Goldman Sachs says the chances of US$100 oil anytime soon is not "very likely." The firm says although there is a chance of lower output from Iran, it looks like the US will make concessions on waivers, while other key importers may simply turn off ship transponders to avoid getting caught. Goldman also says there's roughly 1 million bbl/day of output "readily available" to come on line at a moment's notice. The investment bank sees prices hovering around US$80 a barrel, with "modest" declines in global inventories going into the fourth quarter. The rise of US supply should push prices to about US$70/bbl at the end of 2019 and potentially US$60 in the longer term.

The differential between Brent and WTI widened to just under US$11/bbl this week, the highest since last June. Edmonton Condensate (C5+) was this week's biggest loser in oil markets, tumbling 7.5% as the discount to WTI widened to over US$10/bbl. Western Canadian Select (WCS) also declined 4%, returning to the lows of Q2/2016, when WTI was trading closer to US$40 a barrel.

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

Volatility returned to equity markets this week due to ongoing trade disputes, weak Chinese economic data, rising interest rates, concerns over Italian debt, and lack of progress on Brexit negotiations.

US markets tried to rally this week, but ended the week roughly unchanged. Chinese markets were the worst performers this week.

Despite the threat of rising rates, markets are turning more defensive, with utilities and staples leading gains.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

JP Morgan remains bearish on the oilfield services sector and equipment makers, despite higher oil prices. Echoing a similar sentiment from Jefferies, JPMorgan says it expects Q3 earnings to range from "uninspiring to outright brutal." In the uninspiring category is Schlumberger and Baker Hughes, while Canadian firms Calfrac Well Services and Trican Well Service were downgraded due to a difficult pricing environment. JPMorgan sees little relief in sight for Canadian oil and gas prices, particularly in light of lack of progress on pipeline.

TSX ENERGY STOCKS
TSX BULLISH INDICATORS
TOP 5
  • Gibson Energy (GEI +8.5%)
  • TransCanada (TRP +4.2%)
  • Inter Pipeline (IPL +3.8%)
  • Shawcor (SCL +3.1%)
  • Enbridge (ENB +2.9%)
  • 12-MO HIGHS
  • Gibson Energy (GEI +8.5%)
  • Parkland Fuel (PKI -0.2%)
  • 10-YR HIGHS
  • Parkland Fuel (PKI -0.2%)
  • GOLDEN CROSSES
  • None
  • TSX BEARISH INDICATORS
    BOTTOM
    5
  • Paramount Res (POU -10.3%)
  • Nuvista Energy (NVA -8.6%)
  • Trican Well (TCW -8.2%)
  • Enerplus (ERF -7.7%)
  • Ensign Energy Services (ESI -7.5%)
  • 12-MO LOWS
  • Cdn Natural Res (CNQ -1.8%)
  • Shawcor (SCL +3.1%)
  • Baytex Energy (BTE -6.3%)
  • CES Energy Solutions (CEU -7%)
  • Freehold Royalties (FRU -1.4%)
  • Nuvista Energy (NVA -8.6%)
  • Paramount Res (POU -10.3%)
  • PrairieSky (PSK +2.7%)
  • Trican Well (TCW -8.2%)
  • Vermilion Energy (VET -6%)
  • Whitecap Resources (WCP -5.5%)
  • 10-YR LOWS
  • Shawcor (SCL +3.1%)
  • DEATH CROSSES
  • Cenovus Energy (CVE -2.4%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    SuncorSU46.85▼-1.940.49
     
    55.4732D   W
    Imperial OilIMO43.81▲2.633.43
     
    44.9194D   W
    Husky EnergyHSE20.08▼-0.815.09
     
    22.9975D   W
    MIDSTREAM
    EnbridgeENB42.88▲2.937.36
     
    51.0480D   W
    TransCanadaTRP53.43▲4.250.28
     
    65.1858D   W
    Pembina PipelinePPL44.83▲2.037.60
     
    47.8490D   W
    Inter PipelineIPL22.49▲3.821.36
     
    27.9244D   W
    Keyera KEY34.91▲1.431.20
     
    38.9164D   W
    Gibson EnergyGEI22.70▲8.515.68
     
    23.0498D   W
    LARGE CAP E&P
    Cdn Natural ResCNQ37.17▼-1.836.47
     
    49.0811D   W
    EncanaECA14.71▲0.112.37
     
    18.5419D   W
    Cenovus EnergyCVE11.15▼-2.49.03
     
    14.8420D   W
    TourmalineTOU19.94▼-5.917.78
     
    27.2615D   W
    Seven GenerationsVII14.44▼-5.513.62
     
    21.2515D   W
    SERVICES
    ShawcorSCL24.36▲3.123.22
     
    29.5031D   W
    Pason SystemsPSI20.14▲0.116.05
     
    22.1088D   W
    Mullen Group MTL15.21▲2.614.10
     
    17.1272D   W
    EnerflexEFX16.79▼-0.113.55
     
    17.8292D   W
    Secure EnergySES7.98▲0.66.98
     
    9.8257D   W
    REFINING & MARKETING
    Parkland FuelPKI45.88▼-0.223.41
     
    47.4598D   W
    S&P 500 ENERGY STOCKS
    SPX BULLISH INDICATORS
    TOP 5
  • ONEOK (OKE +4.3%)
  • Kinder Morgan (KMI +2.7%)
  • Cabot Oil & Gas (COG +2.5%)
  • EQT Corp (EQT +2.2%)
  • Marathon Oil (MRO +0.7%)
  • 12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • None
  • SPX BEARISH INDICATORS
    BOTTOM
    5
  • Valero Energy (VLO -14.3%)
  • Marathon Petroleum (MPC -7.7%)
  • Noble Energy (NBL -7.6%)
  • Apache (APA -6.7%)
  • Newfield Exploration (NFX -6.3%)
  • 12-MO LOWS
  • Schlumberger (SLB -1.4%)
  • 10-YR LOWS
  • None
  • DEATH CROSSES
  • Baker Hughes (BHGE -2.9%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    Exxon MobilXOM81.97▲0.772.16
     
    89.3065D   W
    ChevronCVX118.14▲0.3108.02
     
    133.8852D   W
    MIDSTREAM
    Kinder MorganKMI17.98▲2.714.69
     
    19.8379D   W
    Williams CoWMB26.74▲0.224.00
     
    33.6754D   W
    ONEOKOKE67.79▲4.349.65
     
    71.9985D   W
    LARGE CAP E&P
    ConocoPhillipsCOP72.49▼-1.848.97
     
    80.2479D   W
    EOG ResourcesEOG117.67▼-3.795.36
     
    133.5358↓D   W
    Occidental PetroleumOXY72.18▼-6.262.47
     
    87.6731D   W
    Anadarko PetroleumAPC66.00▼-2.446.75
     
    76.7062D   W
    Concho ResourcesCXO147.54▼-1.9123.63
     
    163.1160D   W
    SERVICES
    SchlumbergerSLB58.47▼-1.457.59
     
    80.3523D   W
    HalliburtonHAL37.54▼-5.235.75
     
    57.869D   W
    National-Oilwell VarcoNOV40.40▼-3.631.47
     
    49.0852↓D   W
    TechnipFMCFTI29.34▼-2.524.53
     
    35.0031D   W
    Baker HughesBHGE29.94▼-2.925.53
     
    37.7622D   W
    REFINERS
    Phillips 66PSX102.77▼-6.189.14
     
    123.9732D   W
    Valero EnergyVLO92.76▼-14.375.84
     
    126.9811D   W
    Marathon PetroleumMPC73.92▼-7.755.87
     
    88.4533D   W
    HollyFrontierHFC63.17▼-5.035.49
     
    83.2856D   W
    NYSE ADR ENERGY STOCKS
    ADRs BULLISH INDICATORS
    12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • None
  • ADRs BEARISH INDICATORS
    12-MO LOWS
  • None
  • 10-YR LOWS
  • None
  • DEATH CROSSES
  • None
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    Royal Dutch ShellRDS.A65.53▲0.460.62
     
    73.8650D   W
    TotalTOT60.81▼-1.353.37
     
    65.6953D   W
    BPBP44.00▼-1.236.15
     
    47.8362↓D   W
    EniE35.48▼-1.831.58
     
    40.1542D   W
    EquinorEQNR26.98▲0.419.74
     
    28.9378D   W
    UPDATED: EVERY WEEKEND
    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 (DIVIDEND ADJUSTED)
  • NOTES:
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • C5+ = EDMONTON CONDENSATE
  • US BONDS = TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • CA BONDS = XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SECTOR & SUBSECTOR PERFORMANCES WEIGHTED BY MARKET CAP
  • TSX SHARE PRICES IN CAD; S&P 500 PRICES IN USD
  • ADR: AMERICAN DEPOSITORY RECEIPTS LISTED ON NYSE IN USD
  • SHARE PRICE CHANGES (INCL. NEW HIGHS & LOWS) EXCLUDE DIVIDENDS
  • RANK:
  • BASED ON STOCKCHARTS TECHNICAL RANK (SCTR)
  • REFLECTS RELATIVE STRENGTH AMONG OTHER ENERGY STOCKS (PERCENTILE RANKING)
  • RISING RANK (↑) REFLECTS INCREASING RELATIVE STRENGTH
  • FALLING RANK (↓) REFLECTS DECREASING RELATIVE STRENGTH.
  • An ugly week for energy stocks as oil prices show signs of weakness

    An ugly week for energy stocks as oil prices show signs of weakness

    Cdn crude prices get slaughtered as discounts to WTI go from wide to ridiculous

    Cdn crude prices get slaughtered as discounts to WTI go from wide to ridiculous