TSX energy posts fourth week of declines as Canadian crude prices sink almost 30%

TSX energy posts fourth week of declines as Canadian crude prices sink almost 30%

WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BEARISH
  • US sanctions on Iranian crude exports take effect on Monday. The Trump Administration has granted waivers to eight major buyers, allowing exports to continue, at least in the short term.
USD INDEX
BEARISH
  • The US dollar touched the highs of mid-2017 this week, but gave back most of its gains on Thursday. The greenback eked out a 0.2% increase, but appears to be holding its uptrend.
SUPPLY
BEARISH
  • OPEC production increased 390,000 bbl/day to 33.3 million bbl/day in October, the highest since December 2016. Big increases out of the UAE and Libya more than offset declines out of Iran and Venezuela.
  • Crude and condensate volumes out of Russia rose to a record 11.4 million bbl/day in October.
  • According to the EIA, production out of the Lower 48 returned to old record highs.
DEMAND
BEARISH
  • Oil trader Vitol lowered its 2019 demand from 1.5 to 1.3 million bbl/day, citing demand destruction due to higher oil prices, particularly from emerging markets. This year’s forecast was also downgraded from 1.7 to 1.3 million bbl/day.
  • According to a Reuters survey of 46 economists, oil demand is expected to grow by 1.1 to 1.5 million bbl/day next year, slightly below the IEA's forecast of 1.4 million.
SENTIMENT
BEARISH
  • Brent and WTI are now 15% below the highs of early October.
  • WTI is the weaker of the two benchmarks, breaking below its 200-day moving average and now returning to the lows of last spring. In contrast, Brent prices are holding above key supports, and still appear to be in an uptrend.
  • Futures curves remain flat, with WTI moving back into contango for the first time since late 2017.
  • Money managers increased short positions on Brent last week, reducing net longs by almost 54 million contracts. Little change was reported in WTI contract positions.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • Canada added 11,200 new jobs in October. Saskatchewan saw a small uptick, while most other provinces were unchanged for the month. The unemployment rate dropped from 5.9% to 5.8% as more people exited the labour force.

  • GDP by industry edged up 0.1% in August. Oil and gas extraction rose almost 2%, led by a 3.2% gain in non-conventional production. Support activities for mining and energy declined 3.8%, the fourth consecutive monthly drop, due to less drilling and rigging services.

  • Canada's merchandise trade deficit narrowed to $416 million in September, down from $551 million in August. Imports of energy products fell 11.5% to $3.0 billion. Crude imports declined 13.2% while imports of refined products fell almost 19%. Export of energy products rose 2.3%. Crude exports rose 1% while exports of refined products rose almost 11%.

This week's notable US economic data:

  • The latest labour figures showed 250,000 new jobs created in October. The jobless rate was unchanged at 3.7%. Hourly wages are now up 3.1% for the past 12 months.

  • US productivity grew at an annualized rate of 2.2%, slower than the previous quarter but relatively decent for the year.

  • The US trade deficit widened to US$54.0 billion in September, up from US$53.3 billion in August. This is the fourth month of widening deficits.

  • The ISM Manufacturing index dipped 2.1 points in October, falling to the lows of April.

Better than expected US jobs data sent interest rates rising around the world, including Canada, the UK, Japan and Germany. Longer durations bond yields were the winners this week, with the US 30-year spiking to highs last seen in 2014. Yields on 10-year bonds are still hovering near the highs of 2011. The yield curve remains relatively flat, but firmly above the lows of last August.

On currency markets, the Japanese yen retreated 1%. The pound sterling and Aussie dollar were big winners for the week, rising 1.0% and 1.5%, respectively. The loonie ended Friday about unchanged from the previous week.

SUPPLY & DEMAND UPDATES

This week's supply update:

  • According to Reuters, OPEC increased production by 390,000 bbl/day to 33.3 million bbl/day in October, the highest since December 2016. The biggest increase came from the UAE, where production rose 200,000 bbl/day and is expected to rise by another 250,000 bbl/day before the end of 2018. 

  • Production out of Libya also rose 170,000 bbl/day to an average of 1.22 million bbl/day. Nigeria also added 30,000 bbl/day for the month. Output from Iran declined 100,000 bbl/day, while production out of Venezuela also slid lower for the month.

  • According to Bloomberg, crude oil and condensate production out of Russia reached a record 11.4 million bbl/day in October. Russia's energy minister has rejected calls to freeze or cut output, in light of newly reinstated sanctions on Iran.

  • According to the EIA, US production out of the Lower 48 has recovered from the effects of Hurricane Michael, sending total US production back to its old record high of 11.2 million bbl/day.

This week's demand update:

  • The world's largest oil trader warns that demand for crude is likely to fall next year due to weakness in emerging markets. Vitol revised its 2019 growth forecast from 1.5 to 1.3 million bbl/day, and reduced this year’s forecast from 1.7 to 1.3 million bbl/day.

  • According to Reuters, a recent survey of 46 economists expect oil demand to grow by 1.1 to 1.5 million bbl/day next year, lower than the IEA's October forecast of 1.4 million bbl/day.

Although US sanctions on Iranian crude exports take effect on Monday, the Trump Administration has granted waivers to eight of the country's largest buyers, including China, India, South Korea, Japan and possibly Turkey, allowing exports to continue and easing fears of supply shortages in the near term.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

Oct 31, 2018

Crude stockpiles rise for the sixth week in a row, as production returns to record levels

 

According to Baker Hughes, the US lost one oil rig this week, falling to 874, while Canada lost three rigs, falling to 121. The number of gas rigs were unchanged on both sides of the border.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
72.83
63.14
43.64
27.74
17.92
58.33
52.18
43.64
26.50
17.92
86.29
76.41
71.40
69.32
56.21

This week's Brent price forecasts:

  • Goldman Sachs blames the October meltdown on demand concerns and diminishing fears of supply disruption from Iran. The investment bank maintains its year-end Brent forecast of US$80 a barrel. 

  • According to the Wall Street Journal's October survey of 11 investment banks, the average Brent forecast has been bumped up slightly to US$75 a barrel for 2018.

  • Oil trader Vitol says it expects oil prices to hover closer to US$70 in 2019, warning that crude markets are "not that tight in the immediate term." Diesel demand should get a boost in the second half of next year as new marine fuel standards curb usage of high-sulphur bunker fuels.

The Canadian light and heavy benchmarks took a beating this week, both falling almost 30%. Condensate prices also sank 18% in Edmonton. Canadian oil prices are now back to the lows of early 2016, when WTI and Brent were trading closer to US$30/bbl. Analysts at Scotiabank say things will get better in 2019, as Midwest refineries return to normal rates, crude-by-rail capacity increases and Enbridge's Line 3 expansion gets completed, which should bring the heavy oil discount from the current US$45 a barrel to less than US$25.

Gasoline and heating oil also took a hit this week, declining almost 6%. Alberta's AECO gas prices shot up almost 30% this week, ending Friday at US$1.91/MMBtu, due in part to expiry of its November contract. 

Brent and WTI peaked at the beginning of October but sank about 15% by Halloween, making it the worst month for global oil prices since the middle of 2016.

For the month of October, oil prices averaged as follows (USD/bbl):

  • Brent $80.63 +1.47

  • WTI $70.76 +0.67

  • Edmonton Condensate (C5+): $60.85 -2.30

  • Canadian Light $43.69 -9.48

  • Western Canadian Select $27.47 -12.10

The October monthly average discounts versus WTI were as follows (USD/bbl):

Henry Hub and AECO averaged US$3.21 and US$1.63 MMBtu for the month of October.

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

October turned out to be an ugly month for stocks with the S&P 500 and TSX declining about 7%. Emerging markets were also hit hard last month, with the MSCI world index sinking almost 9%. The Nasdaq was one of the worst performers in North American markets, also falling 9% for the month.

Global markets kicked off November in the green, all posting gains for the week as stocks staged a modest recovery. Asian markets were the best performers, with Hong Kong rising 7% and the Nikkei gaining 5%. US markets outperformed Canada, with the S&P 500 rising 2.4% on gains across most sectors. The TSX rose 1.6%, held back by declines in energy and utility stocks.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Oodles of Canadian producers and a handful of midstream and services stocks hit multi-year lows on the TSX this week. Producers were the worst performers, particularly Encana, sinking 17% after announcing its US$5.5 billion acquisition of Newfield Exploration. The TSX energy sector lost over 2% for the week, its fourth consecutive weekly decline.

The S&P 500 energy sector ended Friday in the green, rising almost 2%. Mega-cap integrated names and refiners were the best performing subsectors.

According to Moody's Investors Service, debt levels at oilfield services and drilling companies have become "unsustainable," forcing many firms to slash expenses. The ratings agency says the offshore services sector "is probably years away from rationalizing and fully recovering," assigning a negative outlook to Diamond Offshore, Hornbeck Offshore, Weatherford and Transocean, seen as being most at risk of default.

Goldman Sachs says it expects gasoline prices to remain weak through the fourth quarter due to seasonality and higher refinery utilization rates. Wide differentials between the different crude feedstocks will drive refineries to "run hard" in order to take advantage of good crack spreads. In the US refining space, the investment firm says it prefers Marathon Petroleum, Phillips 66, Delek and CVR Energy over Valero Energy and PBF Energy.

TSX ENERGY STOCKS
TSX BULLISH INDICATORS
TOP 5
  • Cenovus Energy (CVE +3.1%)
  • TransCanada (TRP +1.9%)
  • Cdn Natural Res (CNQ +1.6%)
  • Ensign Energy Svcs (ESI +1.4%)
  • Secure Energy Svcs (SES +1.3%)
  • 12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • None
  • TSX BEARISH INDICATORS
    BOTTOM
    5
  • Altagas Ltd (ALA -25.9%)
  • Encana (ECA -16.7%)
  • Advantage O&G (AAV -15.4%)
  • Crescent Point (CPG -12.6%)
  • Nuvista Energy (NVA -9.8%)
  • 12-MO LOWS
  • TransCanada (TRP +1.9%)
  • Inter Pipeline (IPL -1.1%)
  • Cdn Natural Res (CNQ +1.6%)
  • Encana (ECA -16.7%)
  • Seven Generations (VII -1.1%)
  • Shawcor (SCL -1.9%)
  • Mullen Group (MTL -1.1%)
  • Advantage O&G (AAV -15.4%)
  • Altagas Ltd (ALA -25.9%)
  • ARC Resources (ARX -5.5%)
  • Baytex Energy (BTE -3.9%)
  • CES Energy (CEU -9.5%)
  • Ensign Energy Svcs (ESI +1.4%)
  • Freehold Royalties (FRU -5.4%)
  • Kelt Exploration (KEL -5.5%)
  • Nuvista Energy (NVA -9.8%)
  • Precision Drilling (PD -3%)
  • Paramount Res (POU -4.7%)
  • PrairieSky (PSK -5.7%)
  • TORC Oil & Gas (TOG -7.2%)
  • Vermilion Energy (VET -4.5%)
  • Whitecap Res (WCP -3.5%)
  • 10-YR LOWS
  • Ensign Energy Svcs (ESI +1.4%)
  • DEATH CROSSES
  • Keyera (KEY -4.4%)
  • Encana (ECA -16.7%)
  • ARC Resources (ARX -5.5%)
  • Enerplus (ERF -5.5%)
  • Ensign Energy Svcs (ESI +1.4%)
  • Precision Drilling (PD -3%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    SuncorSU44.08▼-0.640.49
     
    55.4719D   W
    Imperial OilIMO42.03▲1.333.43
     
    44.9186D   W
    Husky EnergyHSE17.94▼-4.015.09
     
    22.9923D   W
    MIDSTREAM
    EnbridgeENB41.19▲0.637.36
     
    51.0458D   W
    TransCanadaTRP50.75▲1.948.92
     
    65.1832D   W
    Pembina PipelinePPL43.26▼-0.137.60
     
    47.8468D   W
    Inter PipelineIPL21.59▼-1.120.68
     
    27.9234D   W
    Keyera KEY32.50▼-4.431.20
     
    38.9129D   W
    Gibson EnergyGEI20.87▼-0.515.68
     
    23.0496D   W
    LARGE CAP E&P
    Cdn Natural ResCNQ37.50▲1.635.31
     
    49.0818D   W
    EncanaECA11.22▼-16.711.03
     
    18.542D   W
    Cenovus EnergyCVE11.47▲3.19.03
     
    14.8424D   W
    TourmalineTOU19.23▼-2.817.78
     
    27.2614D   W
    Seven GenerationsVII13.68▼-1.112.82
     
    21.2513D   W
    SERVICES
    ShawcorSCL24.15▼-1.923.04
     
    29.5036D   W
    Pason SystemsPSI19.54▼-2.216.05
     
    22.1054D   W
    Mullen Group MTL13.81▼-1.113.43
     
    16.9525D   W
    EnerflexEFX15.85▼-0.413.55
     
    17.6582D   W
    Secure EnergySES8.38▲1.36.98
     
    9.8287D   W
    REFINING & MARKETING
    Parkland FuelPKI40.95▼-3.624.97
     
    47.4597D   W
    S&P 500 ENERGY STOCKS
    SPX BULLISH INDICATORS
    TOP 5
  • Newfield Expl'n (NFX +9.1%)
  • HollyFrontier (HFC +7.3%)
  • Cabot Oil & Gas (COG +7.1%)
  • Valero Energy (VLO +7%)
  • Exxon Mobil (XOM +5.7%)
  • 12-MO HIGHS
  • None
  • 10-YR HIGHS
  • None
  • GOLDEN CROSSES
  • None
  • SPX BEARISH INDICATORS
    BOTTOM
    5
  • Anadarko Petroleum (APC -9.6%)
  • Baker Hughes (BHGE -4.7%)
  • EOG Resources (EOG -4%)
  • Apache (APA -3.9%)
  • Hess Corp (HES -3%)
  • 12-MO LOWS
  • Chevron (CVX +2.9%)
  • Williams Co (WMB +5.2%)
  • Schlumberger (SLB -2.8%)
  • TechnipFMC (FTI +0.6%)
  • EQT Corp (EQT +0.2%)
  • Noble Energy (NBL +2.7%)
  • Newfield Expl'n (NFX +9.1%)
  • Pioneer Natural Res (PXD -1.8%)
  • Cimarex Energy (XEC -1.5%)
  • 10-YR LOWS
  • None
  • DEATH CROSSES
  • Williams Co (WMB +5.2%)
  • Occidental Petroleum (OXY +0.6%)
  • Devon Energy (DVN -0.3%)
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    INTEGRATED
    Exxon MobilXOM81.95▲5.772.16
     
    89.3071D   W
    ChevronCVX114.73▲2.9107.54
     
    133.8838D   W
    MIDSTREAM
    Kinder MorganKMI16.86▲1.614.69
     
    19.8361D   W
    Williams CoWMB25.58▲5.223.54
     
    33.6744D   W
    ONEOKOKE62.53▼-1.349.65
     
    71.9948D   W
    LARGE CAP E&P
    ConocoPhillipsCOP67.84▼-0.948.97
     
    80.2450D   W
    EOG ResourcesEOG102.35▼-4.096.54
     
    133.5310D   W
    Occidental PetroleumOXY68.31▲0.662.47
     
    87.6716D   W
    Anadarko PetroleumAPC53.21▼-9.646.80
     
    76.703D   W
    Concho ResourcesCXO141.05▲4.3123.63
     
    163.1136D   W
    SERVICES
    SchlumbergerSLB51.40▼-2.850.72
     
    80.353D   W
    HalliburtonHAL34.90▼-0.733.73
     
    57.862D   W
    Ntl-Oilwell VarcoNOV36.11▲0.631.47
     
    49.0813D   W
    TechnipFMCFTI26.50▲0.625.36
     
    35.0010D   W
    Baker HughesBHGE26.07▼-4.725.53
     
    37.762D   W
    REFINERS
    Phillips 66PSX99.01▼-0.489.14
     
    123.9715D   W
    Valero EnergyVLO91.83▲7.080.00
     
    126.988D   W
    Marathon PetroleumMPC69.49▲0.960.10
     
    88.4521D   W
    HollyFrontierHFC66.49▲7.339.42
     
    83.2866D   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
  • Royal Dutch Shell (RDS.A +0.5%)
  • 10-YR LOWS
  • None
  • DEATH CROSSES
  • None
  • COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
    Royal Dutch ShellRDS.A62.25▲0.560.53
     
    73.8630D   W
    TotalTOT57.30▼-0.953.37
     
    65.6933D   W
    BPBP41.60▲1.236.15
     
    47.8336D   W
    EniE34.92▲1.232.13
     
    40.1540D   W
    EquinorEQNR25.18▼-1.819.76
     
    28.9348↓D   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.
  • Oil prices sink into bear market territory as US output surges to new highs

    Oil prices sink into bear market territory as US output surges to new highs

    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

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