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

WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • No new news on the geopolitical front this week.
USD INDEX
BEARISH
  • The US dollar gained 0.7%, ending the week at a 2-month high.
SUPPLY
NEUTRAL
  • According to OPEC, global inventories are starting to build again, potentially forcing Saudi Arabia to reverse its decision to raise output.
DEMAND
BEARISH
  • A rising US dollar and higher interest rates appear to be dampening growth from emerging markets, particularly China and India, two of the world's largest importers of crude.
SENTIMENT
BEARISH
  • Brent and WTI declined for the third week in a row, each remaining about US$9 below the highs of early October.
  • WTI currently sits at its 200-day moving average, while Brent remains firmly above support.
  • Futures curves are approximately flat, as traders remain confused over the direction in oil prices. WTI futures are slightly in contango, while Brent futures are slightly in backwardation.
  • Money managers continue to reduce long positions on both Brent and WTI, while the number of short positions is rising for both benchmarks.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • Wholesale sales edged down 0.1% to $63.6 billion in August. Sales of building materials and auto parts led to the downside, while machinery and equipment posted the largest gain.

  • Average weekly earnings rose to $1,006 in August, up 0.6% from July, now 2.9% higher than the same time last year. Workers in BC are averaging a 4% y/y pay raise, while salaries in Saskatchewan and Newfoundland are actually in the negative for the year.

As expected, the Bank of Canada raised its overnight lending rate to 1.75%. The BoC says slowing growth in household debt, a US new trade deal and the recent sanctioning of LNG Canada are all reasons to remain bullish on the Canadian economy. The Bank adds it will continue to monitor the fallout from the recent decline in oil and gas prices, as well as "ongoing competitiveness challenges" brought on by insufficient crude export capacity. The loonie was unimpressed, falling 0.2% for the week.

After expanding 4.2% in the spring, US third quarter GDP slowed to 3.5% on an annualized basis, as domestic consumption remains strong south of the border. Despite indications of a strong economy, US bond yields declined across the board this week, sending the yield curve lower.

The US dollar gained 0.7% on Friday, returning to the highs of mid-August. Lack of progress on Brexit and ongoing concerns over Italian debt also weighed on the Euro and pound sterling, falling 0.9% and 1.8%, respectively.

SUPPLY & DEMAND UPDATES

OPEC expressed concerns over global inventories this week, which appear to be rising due to weakness in emerging markets and rising production out of Saudi Arabia, Russia and the US. The cartel now says its plan to raise output in light of falling Iranian supply "may need changing course."

The US Energy Information Administration (EIA) reported its fifth weekly increase in US crude inventories, rising another 6.4 million barrels last week.

According to the National Energy Board (NEB), crude-by-rail exports to the US rose to 229,500 bbl/day in August, while Genscape is forecasting figures closer to 284,000 bbl/day for mid-October. Most analysts expect rail exports to reach 300,000 bbl/day by the end of this year and potentially 400,000 bbl/day by the end of 2019.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

Oct 24, 2018

CRUDE STOCKPILES CONTINUE TO RISE, now up 28 million barrels since mid-September

 

US oil rig counts rose for the third week in a row, gaining two rigs on Friday, to a total of 875. Canada put one more oil rig into service this week, rising to 124, and 8 new gas rigs, to a total of 76.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
77.62
67.59
53.09
39.59
24.59
57.23
51.29
52.83
38.43
19.43
86.29
76.41
71.40
69.32
56.21

Discounts on Canadian light and heavy crude and condensate widened to record or near-record levels this week, sinking Canadian oil prices to multi-year lows. The widening discounts are being blamed on low demand in the US Midwest, due to a very busy maintenance turnaround season. According to the EIA, refinery utilization has already started to improve, as maintenance gets completed and refineries return to normal rates. The US imported just 3.2 million bbl/day of Canadian crude last week, about 400,000 bbl/day below normal.

Aside from oil prices, gasoline also sank more than 5% for the week. Henry Hub lost just under 1%, while Alberta's AECO gas declined 6%.

In a note to clients this week, Jefferies says the combination of geopolitical tensions in the Middle East, global economic expansion and supply side risks are "likely to drive oil prices higher" this year. The investment bank points to pending sanctions on Iran, continued declines out of Venezuela and levelling out of US shale production as reasons to be bullish, forecasting a fairly balanced market through 2019. However, Jefferies remains concerned on the recent strength of the US dollar and its negative impact on emerging markets, particularly, China and India, two very large crude importers.

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, blamed in part on fears over rising rates, impact of US trade tariffs on Q3 earnings and a strengthening US dollar. 

On US markets, industrials, materials and financial sectors sank to new yearly lows, led by big declines in Caterpillar, DowDupont and 3M.

Except for Brazil and Shanghai, most other global markets sank lower this week, with the Nikkei posting the steepest declines. The TSX fell almost 4%, returning to the lows of mid-2017.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Energy was the worst performing sector on the S&P 500, declining 7% w/w, with all large-cap energy names posting losses. On the TSX, the energy sector posted a 4% loss, with many producers sinking to multi-year lows.

Piper Jaffray analyst Blake Fernandez says energy stocks should begin to improve from here, and potentially outperform the broader markets, particularly mega-cap integrated names. His top pick is Chevron, while international names BP, Total and Equinor were rated as Overweight.

TSX ENERGY STOCKS
TSX BULLISH INDICATORS
TOP 5
  • Advantage Oil & Gas (AAV +4.7%)
  • Secure Energy (SES +3.6%)
  • CES Energy Solutions (CEU +2.5%)
  • Shawcor (SCL +1.1%)
  • 12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • Peyto Exploration (PEY -3.4%)
  • TSX BEARISH INDICATORS
    BOTTOM
    5
  • Paramount Resources (POU -13.7%)
  • Nuvista Energy (NVA -13.3%)
  • Precision Drilling (PD -12.8%)
  • Enerplus (ERF -9.7%)
  • TORC Oil & Gas (TOG -8.7%)
  • 12-MO LOWS
  • TransCanada (TRP -6.8%)
  • Inter Pipeline (IPL -2.9%)
  • Cdn Natural Res (CNQ -0.7%)
  • Seven Generations (VII -4.2%)
  • Shawcor (SCL +1.1%)
  • Mullen Group (MTL -8.2%)
  • Baytex Energy (BTE -6.7%)
  • CES Energy Solutions (CEU +2.5%)
  • Crescent Point (CPG -2.6%)
  • Ensign Energy Services (ESI -5.8%)
  • Freehold Royalties (FRU -5.7%)
  • Kelt Exploration (KEL -7.5%)
  • Nuvista Energy (NVA -13.3%)
  • Paramount Resources (POU -13.7%)
  • PrairieSky (PSK -1.7%)
  • Trican Well (TCW -2.6%)
  • TORC Oil & Gas (TOG -8.7%)
  • Vermilion Energy (VET -6.2%)
  • Whitecap Resources (WCP -5.3%)
  • 10-YR LOWS
  • Crescent Point (CPG -2.6%)
  • DEATH CROSSES
  • Shawcor (SCL +1.1%)
  • Kelt Exploration (KEL -7.5%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    SuncorSU44.36▼-5.340.49
     
    55.4727D   W
    Imperial OilIMO41.50▼-5.333.43
     
    44.9185D   W
    Husky EnergyHSE18.69▼-6.915.09
     
    22.9951D   W
    MIDSTREAM
    EnbridgeENB40.96▼-4.537.36
     
    51.0472D   W
    TransCanadaTRP49.78▼-6.849.12
     
    65.1833D   W
    Pembina PipelinePPL43.31▼-3.437.60
     
    47.8485D   W
    Inter PipelineIPL21.84▼-2.921.30
     
    27.9255D   W
    Keyera KEY33.99▼-2.631.20
     
    38.9167D   W
    Gibson EnergyGEI20.98▼-7.615.68
     
    23.0497D   W
    LARGE CAP E&P
    Cdn Natural ResCNQ36.91▼-0.736.00
     
    49.0815D   W
    EncanaECA13.47▼-8.412.37
     
    18.5413D   W
    Cenovus EnergyCVE11.12▼-0.39.03
     
    14.8424D   W
    TourmalineTOU19.78▼-0.817.78
     
    27.2618D   W
    Seven GenerationsVII13.83▼-4.213.51
     
    21.2513D   W
    SERVICES
    ShawcorSCL24.63▲1.123.10
     
    29.5066D   W
    Pason SystemsPSI19.98▼-0.816.05
     
    22.1092D   W
    Mullen Group MTL13.97▼-8.213.87
     
    17.1235D   W
    EnerflexEFX15.92▼-5.213.55
     
    17.8284D   W
    Secure EnergySES8.27▲3.66.98
     
    9.8288D   W
    REFINING & MARKETING
    Parkland FuelPKI42.48▼-7.424.97
     
    47.4598D   W
    S&P 500 ENERGY STOCKS
    SPX BULLISH INDICATORS
    TOP 5
  • None
  • 12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • Helmerich & Payne (HP -5.3%)
  • SPX BEARISH INDICATORS
    BOTTOM
    5
  • EQT Corp (EQT -29.8%)
  • Newfield Exploration (NFX -15.1%)
  • Noble Energy (NBL -12.2%)
  • Apache (APA -11.2%)
  • Ntl-Oilwell Varco (NOV -11.2%)
  • 12-MO LOWS
  • Williams Co (WMB -9.1%)
  • Schlumberger (SLB -9.5%)
  • Halliburton (HAL -6.4%)
  • Cabot Oil & Gas (COG -4.4%)
  • EQT Corp (EQT -29.8%)
  • Newfield Exploration (NFX -15.1%)
  • Cimarex Energy (XEC -10.6%)
  • 10-YR LOWS
  • None
  • DEATH CROSSES
  • Anadarko Petroleum (APC -10.8%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    Exxon MobilXOM77.53▼-5.472.16
     
    89.3060D   W
    ChevronCVX111.53▼-5.6108.02
     
    133.8841D   W
    MIDSTREAM
    Kinder MorganKMI16.59▼-7.714.69
     
    19.8361D   W
    Williams CoWMB24.32▼-9.124.00
     
    33.6732D   W
    ONEOKOKE63.34▼-6.649.65
     
    71.9966D   W
    LARGE CAP E&P
    ConocoPhillipsCOP68.48▼-5.548.97
     
    80.2469D   W
    EOG ResourcesEOG106.56▼-9.495.74
     
    133.5331D   W
    Occidental PetroleumOXY67.91▼-5.962.47
     
    87.6727D   W
    Anadarko PetroleumAPC58.84▼-10.846.75
     
    76.7031D   W
    Concho ResourcesCXO135.18▼-8.4123.63
     
    163.1134↓D   W
    SERVICES
    SchlumbergerSLB52.90▼-9.551.84
     
    80.3511D   W
    HalliburtonHAL35.14▼-6.433.73
     
    57.867D   W
    Ntl-Oilwell VarcoNOV35.89▼-11.231.47
     
    49.0825↓D   W
    TechnipFMCFTI26.35▼-10.225.16
     
    35.0016D   W
    Baker HughesBHGE27.36▼-8.625.53
     
    37.7611D   W
    REFINERS
    Phillips 66PSX99.45▼-3.289.14
     
    123.9737D   W
    Valero EnergyVLO85.79▼-7.575.84
     
    126.987D   W
    Marathon PetroleumMPC68.86▼-6.855.87
     
    88.4539D   W
    HollyFrontierHFC61.99▼-1.935.71
     
    83.2863D   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.A61.91▼-5.560.62
     
    73.8645D   W
    TotalTOT57.84▼-4.953.37
     
    65.6952D   W
    BPBP41.10▼-6.636.15
     
    47.8347D   W
    EniE34.50▼-2.831.58
     
    40.1551D   W
    EquinorEQNR25.65▼-4.919.74
     
    28.9370D   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.
  • TSX energy posts fourth week of declines as Canadian crude prices sink almost 30%

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    Market rotation continues as traders turn defensive