Canadian energy sector posts ninth week of losses
This week's notable Canadian economic data:
The Industrial Product Price Index (IPPI), rose 0.2% in October, mainly due to higher food prices. Gasoline declined almost 4% for the month, offsetting gains in diesel and other refinery products. On an annualized basis, IPPI decelerated to 5.3% in October.
The Raw Materials Price Index (RMPI), fell 2.4% in October, mainly as a result of a 7% decline in crude prices. On an annualized basis, RMPI decelerated to 7.7% in October.
For the month of September, the Canadian economy contracted 0.1% m/m, due to a slowdown in the energy patch. This is the third decline for the energy sector in the past four months.
GDP expanded 0.5% in the third quarter, down from 0.7% in Q2. Exports edged up 0.2%, despite a drop in investments. The best performing sectors in Q3 were mining, petroleum refining and real-estate. On an annualized basis, the country's GDP is up 2.0% y/y.
The latest US GDP figures peg growth south of the border at 3.5% annually in the third quarter, unchanged from previous estimates, but down substantially from a growth rate of 4.2% in Q2.
Global bond yields declined this week after Fed Chair Jerome Powell softened his stance on rate hikes going forward. The 10-year slid 0.04 basis points to 3.01% on Friday. Yields on Canadian bonds also declined, as economists now forecast no change to interest rates at the next Bank of Canada decision meeting on Wednesday.
The US dollar ticked higher by 0.4% but failed to top recent highs. The Aussie dollar and New Zealand kiwi were the big winners in currency markets this week, both rising over 1%. The Euro, pound sterling and Canadian dollar dipped about 0.5%.
All eyes are on OPEC and friends in Vienna next Wednesday, as the group discusses output plans for 2019. The latest rumours indicate the group will be looking for a 1.3 million bbl/day reduction, with Nigeria and Libya now asked to participate in the cuts.
According to Baker Hughes, the US put two more oil rigs into service this week, rising to 887. Canada lost 5 oil rigs, falling to 119. US production held steady at 11.7 million bbl/day last week.
Russian President Vladimir Putin called US$60 oil "balanced and fair," but now says he remains open to reducing output next year.
Brent and WTI ended November down 22%, and over 30% from the highs of early October. In contrast, Western Canadian Select ended the month about 0.5% higher than the end of October, as the discount to WTI narrowed to just US$28.50/bbl on Friday.
Global equity markets rebounded this week, as trade tensions between China and the US appear to be easing. The S&P 500 rose about 5%, with gains seen across all sectors. The TSX rose just 1.3%, held back by losses in energy, materials and utility stocks.
The TSX energy sector declined for the ninth week in a row, ending Friday down another 1.3%. The sector is now down over 20% in the past two months. Producers and oilfield services firms remain the weakest of all energy subsectors, with many names hitting new multi-year lows during the week.
Credit ratings agency DBRS warns that several large Canadian oil and gas companies face a credit downgrade if pricing differentials don't improve. The agency calls the current discount on Canadian light, heavy and synthetic crude "very unusual," obviously putting a lot of downward pressure on cash flow and credit metrics.
The S&P 500 energy sector gained 3.5% for the week, with most names ending Friday in the positive. The oilfield services subsector remains by far the weakest subsector among the group. The sector is also down 15% from the highs of early October.
|Suncor Energy||SU||42.84||▼-0.5||40.49||55.47||24||D W|
|Imperial Oil||IMO||39.57||▼0.0||33.43||44.91||40||D W|
|Husky Energy||HSE||16.50||▲7.5||15.29||22.99||24||D W|
|Pembina Pipeline||PPL||44.80||▲2.4||37.60||47.84||82||D W|
|Inter Pipeline||IPL||21.36||▼-2.6||20.68||27.92||34||D W|
|Gibson Energy||GEI||21.35||▲1.1||15.68||23.32||97||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||33.39||▼-0.6||32.08||49.08||14||D W|
|Cenovus Energy||CVE||9.82||▲6.2||9.03||14.84||16||D W|
|Seven Generations||VII||10.13||▼-8.5||9.69||19.40||4||D W|
|Pason Systems||PSI||19.93||▼-5.8||16.05||24.57||58||D W|
|Mullen Group||MTL||12.30||▼-2.9||12.04||16.93||19||D W|
|Secure Energy||SES||7.20||▼-7.5||6.98||9.82||25↓||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||39.14||▲3.4||25.11||47.45||94||D W|
|Exxon Mobil||XOM||79.50||▲5.3||72.16||89.30||53||D W|
|Kinder Morgan||KMI||17.07||▲2.8||14.69||19.83||54||D W|
|Williams Co||WMB||25.32||▲3.2||23.54||33.67||38||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||103.31||▲2.6||96.54||133.53||22||D W|
|Occidental Petro||OXY||70.27||▲0.6||62.47||87.67||23||D W|
|Anadarko Petro||APC||52.90||▲2.5||46.80||76.70||9||D W|
|Concho Res||CXO||130.34||▲2.7||123.63||163.11||36||D W|
|Ntl-Oilwell Varco||NOV||32.11||▲1.5||31.30||49.08||5||D W|
|Baker Hughes||BHGE||22.82||▲1.6||21.67||37.76||3||D W|
|Phillips 66||PSX||93.52||▲5.1||88.99||123.97||12||D W|
|Valero Energy||VLO||79.90||▲3.7||76.25||126.98||3||D W|
|Marathon Petro||MPC||65.16||▲5.6||60.64||88.45||14||D W|