Carnage continues in energy markets as traders hit the sell button

Carnage continues in energy markets as traders hit the sell button

This week's Energy Market Summary for the week ending Friday December 21, 2018:
  • The meltdown continues in equity and energy markets ...
    ... as investors flee stocks and commodities
  • Canadian crude and condensate differentials continue to narrow
  • Dow on track for worst December since 1931 Great Depression
  • Traders praying for a Santa Claus rally next week
  • TSX energy sector now down 12 weeks in a row ...
    ... and heads back to lows of 2003.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BEARISH
  • Energy markets are being rattled by rising tensions between China and the US, causing traders to sell risker assets, such as stocks and commodities.
USD INDEX
NEUTRAL
  • The US dollar declined 0.5% for the week, remaining in a sideways trading pattern.
SUPPLY
BULLISH
  • OPEC tried to put a floor under oil prices this week, calling on producers to publicly announced planned production cuts in the "interests of openness and transparency." In order to hit the 1.2 million bbl/day reduction target, OPEC+ now needs to trim output by 3%.
  • Despite conflicting reports out of the Libyan government, the El Sharara oilfield remains closed this week, after officials reneged on a plan to pay-off protesting workers. Force majeure remains in effect in the region, reducing exports by as much as 400,000 bbl/day.
  • Saudi Arabia now says it plans to reduce January output by 322,000 bbl/day, revised higher from its previous forecast of 250,000 bbl/day.
  • According to Baker Hughes, the number of oil rigs in service in the US jumped by 10 to 883 this week. Canada lost 37 rigs, falling to 58.
DEMAND
BEARISH
  • US imports of Canadian crude declined sharply last week, falling 400,000 bbl/day to just 3.1 million bbl/day. Lower WTI prices and higher prices for Canadian heavy oil is making crude-by-rail exports uneconomic, denting demand south of the border.
  • After a record October, India's crude oil imports for the month of November slid 11%, the biggest decline in almost four years. The drop was attributed to refinery maintenance and lower imports from Iran.
SENTIMENT
BEARISH
  • Both Brent and WTI prices have broken below recent support levels, ending the week at 14-month lows.
  • Brent traders were a little more optimistic last week, as the number of net longs improved slightly. No such luck for WTI, as traders continue to pile on short positions.
OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
53.82
45.59
41.84
37.64
29.64
53.82
45.59
37.04
20.83
12.59
86.29
76.41
71.40
69.32
56.21

Brent and WTI both declined about 11% this week, the worst showing since January 2016. The two benchmarks are now back to the levels of late-summer 2017.

Gasoline prices dropped almost 9%, while heating oil declined 6.5%. Henry Hub natural gas prices continue to be very volatile, ending Friday 2% lower.

In Canadian oil markets:

  • The differential for Western Canadian Select (WCS) declined another US$1.60 to US$16/bbl, while the Canadian Light discount shrank by US$0.70 to US$8. 

  • Despite the narrowing of differentials to WTI, both Canadian benchmarks declined about 12% for the week.

  • Edmonton Condensate (C5+) wins the prize for most improved this week, as the discount to WTI narrowed from US$8 to just US$3.75/bbl. 

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

DEC 19, 2018

US IMPORTS OF CDN CRUDE SINK 10% TO JUST 3.1M BBL/DAY

 
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)
CURRENCIES & BONDS

Today's notable Canadian economic data:

  • After a 0.1% decline in September, October real GDP expanded 0.3%, with improvements seen across most sectors. Oil and gas extraction rose 3.6% for the month, including a 5.4% improvement in oil sands output and 1.9% gain in conventional oil and gas extraction.

  • Retail sales rose 0.3% to $51.0 billion in October, mainly on higher sales at auto dealerships and gasoline stations.

  • After falling 0.7% in September, wholesale sales rose 1.0% to $63.8 billion in October, with machinery and personal goods contributing to most of the gains.

South of the border this week:

  • Despite opposition from President Trump, ongoing turmoil in equity markets and a downgraded 2019 growth forecast, the US Federal Reserve raised interest rates for the fourth time this year. Two more hikes are expected next year, revised lower from three.

  • The news sent US bond yields lower. The yield curve remains inverted on the short end, with rates on 3-year bonds slightly below 2-year notes. The "official" yield curve (10 vs 2-year) was unchanged this week at 0.16 basis points.

  • The US dollar declined 0.5% for the week. Investors seeking safety moved into the yen, which rose 2.4% from the previous Friday.

Despite little movement in the greenback, the Canadian dollar declined another 1.6% this week, bringing December's total decline to 2.2% so far. Falling commodity prices also dragged the Aussie dollar down another 2%.

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

Equity markets around the world posted heavy losses again this week. US markets were the worst hit, with most averages falling about 7%. European markets faired a bit better, declining about 3.5%. In Japan, the Nikkei slid almost 6%, due in part to a strengthening yen. 

Barring a miraculous recovery next week, the Dow Jones Industrial (DJIA) is poised for its worst December showing since the Great Depression of 1931, having lost over 3,000 points (12%) so far this month. December is typically the best month for stock markets, with big gains normally seen during the last five trading days of the year (aka the Santa Claus rally) and into the first week of January.

In Toronto, the TSX declined 4.5% this week. Except for gold stocks, all sectors posted losses.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Energy continues to be one of the worst performing sectors on both sides of the border. On the TSX, energy declined over 7%, posting its 12th consecutive week of losses. The Canadian energy index is now down almost 40% from last summer, ending Friday below the lows of January 2016, and headed back to levels not seen since mid-2003.

The S&P 500 energy sector isn't fairing much better, sliding another 9% this week, and now down almost 30% from last summer. The sector is now back to the lows of January 2016.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
INTEGRATED
Suncor EnergySU36.33▼-8.336.12
 
55.4715D   W
Imperial OilIMO34.66▼-0.333.43
 
44.9129D   W
Husky EnergyHSE13.66▼-11.113.49
 
22.9913D   W
MIDSTREAM
EnbridgeENB41.92▼-2.037.36
 
51.0481D   W
TransCanadaTRP49.99▼-6.648.92
 
62.2454D   W
Pembina PipelinePPL40.27▼-8.337.60
 
47.8449D   W
Inter PipelineIPL19.30▼-4.719.05
 
26.3728D   W
Keyera KEY25.45▼-9.825.37
 
38.9116D   W
Gibson EnergyGEI17.59▼-9.215.68
 
23.3258D   W
LARGE CAP E&P
Cdn Natural ResCNQ31.59▼-7.831.42
 
49.0821D   W
Cenovus EnergyCVE9.01▼-12.28.95
 
14.8418D   W
EncanaECA7.29▼-6.37.22
 
18.543D   W
TourmalineTOU16.41▼-2.415.87
 
26.1917D   W
Vermilion EnergyVET28.41▼-1.826.90
 
50.4613D   W
SERVICES
Pason SystemsPSI17.77▼-4.416.05
 
24.5734D   W
EnerflexEFX15.38▼-0.113.55
 
18.7282D   W
ShawcorSCL16.14▼-4.615.59
 
29.508D   W
Mullen Group MTL11.88▼-3.311.84
 
16.9326D   W
Secure EnergySES6.39▼-11.56.33
 
9.8225D   W
REFINING & MARKETING
Parkland FuelPKI32.68▼-9.626.34
 
47.4556↓D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
INTEGRATED
Exxon MobilXOM68.12▼-9.967.67
 
89.3042D   W
ChevronCVX104.21▼-8.5102.91
 
133.8848D   W
MIDSTREAM
Kinder MorganKMI15.57▼-3.714.69
 
19.8363D   W
Williams CoWMB21.78▼-7.121.55
 
33.6735D   W
ONEOKOKE53.90▼-10.551.28
 
71.9935D   W
LARGE CAP E&P
ConocoPhillipsCOP59.80▼-7.450.18
 
80.2456D   W
EOG ResourcesEOG87.26▼-12.886.82
 
133.5316D   W
Occidental PetroOXY59.98▼-7.959.60
 
87.6723D   W
Anadarko PetroAPC42.95▼-15.742.81
 
76.705D   W
Concho ResCXO99.85▼-13.298.35
 
163.1111D   W
SERVICES
SchlumbergerSLB35.70▼-8.735.23
 
80.351D   W
HalliburtonHAL25.85▼-10.925.56
 
57.863D   W
Ntl-Oilwell VarcoNOV25.24▼-5.425.00
 
49.083D   W
Baker HughesBHGE20.87▼-2.720.65
 
37.7610D   W
TechnipFMCFTI19.17▼-4.818.89
 
35.006D   W
REFINERS
Marathon PetroMPC56.74▼-5.256.49
 
88.4530D   W
Phillips 66PSX82.38▼-5.181.64
 
123.9724D   W
Valero EnergyVLO71.64▼-2.370.01
 
126.9813D   W
HollyFrontierHFC49.36▼-8.742.42
 
83.2817D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H RANK  CHARTS
Royal Dutch ShellRDS.A56.68▼-2.756.27
 
73.8615D   W
TotalTOT51.78▼-4.751.48
 
65.6956D   W
BPBP37.67▼-2.636.15
 
47.8357D   W
EniE30.74▼-3.030.51
 
40.1552D   W
EquinorEQNR20.75▼-6.120.65
 
28.9334D   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 sector posts first weekly gain since September

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    TSX energy posts 11th week of declines, despite narrowing differentials

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