TSX energy posts 11th week of declines, despite narrowing differentials
Today's notable US economic data:
US initial jobless claims declined by 27,000, the largest drop since April 2015. Claims are now back to levels not seen since the end of 1969.
US inflation was reported unchanged in November, due in part to a 4.2% decline in gas prices.
US bond yields ended Friday flat to slightly higher from last week's close. Short duration bonds remains slightly inverted, with 3-year notes trading just below 2-year rates. The US dollar continues to trend sideways, gaining 0.5% for the week, reversing all losses from the previous week.
Across the pond this week:
British PM Theresa May narrowly survived a non-confidence vote, but says she will not lead her party into the next election. A Brexit vote scheduled for this week was cancelled and has been rescheduled for January 21, 2019. The pound sterling posted its sixth week of declines, falling another 1% on Friday, returning to the levels of early 2017.
The European Central Bank (ECB) officially declared an end to its €30 billion monthly asset purchase program, but promised to keep its foot on the gas pedal for as long as needed. The ECB has purchased more than €2.6 trillion in bonds since the program began in the spring of 2015. President Mario Draghi kept interest rates unchanged at zero this week.
This week's supply updates:
The US Energy Information Administration (EIA) raised its 2019 crude oil production forecast to an average of 12.06 million bbl/day in 2019, up 1.18 million bbl/day from this year. The 2018 average was reduced to 10.88 million bbl/day, down 20,000 bbl/day from its previous forecast.
OPEC produced about 33 million bbl/day in November, up 100,000 bbl/day from the previous month as higher output from Saudi Arabia and the UAE offset a sharp decline out of Iran. Last week, OPEC agreed to reduce output by 800,000 bbl/day in January, as measured from last October's level.
Saudi Arabia says it plans to slash output to about 10.2 million bbl/day in January, down 900,000 bbl/day from November's record high of 11.1 million bbl/day. The kingdom reported 10.7 million bbl/day of output in December.
World oil supply declined 360,000 bbl/day in November, falling to 101.1 million bbl/day on lower output from the North Sea, Canada and Russia.
Russian Energy Minister Alex Novak said his country will reduce output by at least 50,000 to 60,000 bbl/day in January.
OPEC reduced its 2019 crude demand forecast by 100,000 bbl/day to 31.44 million bbl/day. The International Energy Agency (IEA) now says the global crude balance could move into a deficit position next year, assuming OPEC, Russia and Alberta stick to their promised production cuts.
OECD commercial stockpiles rose by 5.7 million barrels in October, the fourth consecutive monthly decline. US crude stockpiles also declined slightly last week.
According to Baker Hughes, four oil rigs were taken out of service in the US this week, while Canada lost 7 rigs. Five rigs were also pulled out of natural gas service in Canada.
Brent and WTI continue to trend sideways, each falling over 2% for the week.
The discount on Western Canadian Select (WCS) narrowed by US$2.40/bbl, falling to about US$17.50 on Friday, a differential last seen in the middle of June. The Canadian Light discount narrowed by over US$1 to less than US$9, while the discount on Edmonton Condensate (C5+) fell to US$8/bbl, both returning to the lows of mid-August.
WCS was this week's big winner in crude markets, gaining over 3%.
After rising through much of November, Henry Hub gas prices took a big haircut this week, falling almost 15% w/w, ending Friday at US$3.83/MMBtu. In contrast, AECO gas prices gained almost 9%, ending the week at US$1.26/MMBtu.
Gasoline also declined 3.4% for the week, while heating oil fell over 2%.
Despite optimism over US/China trade relations, continued weakness in Chinese economic data weighed on US markets again this week. Dow Transports were the worst hit, falling over 4%, while small cap names fell about 3%. The S&P 500 declined 1.3% for the week, with energy and financials posting the biggest declines.
Lower commodity prices also dragged on markets in Toronto, Australia and Brazil. The TSX declined over 1%, dragged lower by another big sell-off in the energy sector.
The TSX energy sector posted its eleventh consecutive week of declines, logging another 4.5% loss on Friday. The sector is now down over 30% from the levels of last summer. A number of Canadian energy components hit fresh multi-year lows during the week, including Suncor, Husky, Inter Pipeline, Encana, Tourmaline and Vermilion Energy.
The S&P 500 energy sector also declined 3.3% for the week, its seventh decline in the past 10 weeks. The sell-off continues among energy services providers, with most sitting at multi-year lows. Schlumberger is the notable stand-out, returning to the lows of early 2009 this week. Independent refiners also continue their sharp declines from the highs of last summer, with Marathon Petroleum, Phillips 66 and Valero Energy touching 1-year lows. The SPX energy basket is down over 20% from last summer.
|Suncor Energy||SU||39.62||▼-5.4||39.28||55.47||20||D W|
|Imperial Oil||IMO||34.78||▼-7.2||33.43||44.91||20||D W|
|Husky Energy||HSE||15.37||▼-4.7||15.24||22.99||19||D W|
|Pembina Pipeline||PPL||43.91||▲1.5||37.60||47.84||75||D W|
|Inter Pipeline||IPL||20.26||▼-3.2||20.22||27.74||29||D W|
|Gibson Energy||GEI||19.37||▼-1.1||15.68||23.32||87||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||34.28||▼-4.3||32.08||49.08||28||D W|
|Cenovus Energy||CVE||10.26||▲1.0||9.03||14.84||30||D W|
|Vermilion Energy||VET||28.92||▼-7.4||28.83||50.46||10||D W|
|Pason Systems||PSI||18.58||▼-3.2||16.05||24.57||40||D W|
|Mullen Group||MTL||12.29||▼-0.5||11.93||16.93||27↑||D W|
|Secure Energy||SES||7.22||▲1.7||6.72||9.82||51||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||36.17||▼-1.9||26.34||47.45||90||D W|
|Exxon Mobil||XOM||75.58||▼-2.7||72.16||89.30||57||D W|
|Kinder Morgan||KMI||16.17||▼-1.1||14.69||19.83||57||D W|
|Williams Co||WMB||23.45||▼-4.2||23.35||33.67||38||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||100.08||▼-3.4||96.54||133.53||39||D W|
|Occidental Petro||OXY||65.10||▼-2.2||62.47||87.67||29||D W|
|Anadarko Petro||APC||50.95||▼-2.1||47.37||76.70||18||D W|
|Concho Res||CXO||115.02||▼-6.0||114.40||163.11||25||D W|
|Ntl-Oilwell Varco||NOV||26.68||▼-10.5||26.53||49.08||2||D W|
|Baker Hughes||BHGE||21.45||▼-1.0||20.81||37.76||6||D W|
|Marathon Petro||MPC||59.87||▼-2.7||59.55||88.45||22||D W|
|Phillips 66||PSX||86.83||▼-3.9||86.47||123.97||18||D W|
|Valero Energy||VLO||73.30||▼-3.5||71.48||126.98||5||D W|