TSX energy sector posts first weekly gain since September
Energy commodities slumped again this week, with Brent and WTI sliding to multi-year lows on Christmas Eve. Prices recovered slightly on Boxing Day but gave back most of the gains by Friday.
Brent was this week's biggest loser in crude markets, falling 3%, while WTI dipped a more modest 0.6%. The spread between Brent and WTI narrowed to less than US$7/bbl. Note that the Brent February contract expired at the end of the trading day on Friday.
Citibank says crude prices can't stay below US$45 for long, unless there's a "sharp slowdown in global oil demand" and downward revision in GDP growth. The bank has a 2019 forecast of US$49 for WTI and about US$60 for Brent.
After surging to multi-year highs in mid-November, US natural gas prices are slowly returning to pre-breakout levels, tumbling another 12% for the week. Heating oil declined almost 4% while gasoline prices dipped 0.4%.
In Canadian oil markets this week:
- Despite no change in differentials, Canadian Light and Edmonton Condensate (C5+) d eclined less than 1%, falling in sympathy with WTI.
- Western Canadian Select (WCS) was roughly unchanged, as the discount to WTI narrowed slightly, ending Friday at US$15.65/bbl.
In US treasury markets, yields on shorter duration bonds declined for the week, steeping the yield curve to 0.20 basis points. Yields on 10-year notes dropped to 2.72%, returning to the lows of last spring.
Canadian 10-year bond rates fell to 1.95%, the lowest since mid-2017. The loonie posted its sixth consecutive week of declines, ending Friday back at the lows of May 2017.
Most global bond yields also declined this week, including Japan, where rates on 10-year notes returned to 0% for the first time since September 2017.
Most global currencies gained ground against the greenback, which declined another 0.5% on Friday. Safe-haven buyers headed to the Swiss franc this week, boosting the franc 1.1%.
After posting heavy losses through much of December, US equity markets staged a nice recovery this week on better-than-expected holiday sales. The Dow Jones Industrial surged over 1,000 points on Wednesday, ending the week almost 3% higher. The Nasdaq was the best performing index, rising 4% from last Friday's close. The Dow Utilities index was a notable exception, sinking 1.5% for the week.
In Toronto, the TSX rose over 2%, the first weekly increase this month.
Chinese markets all posted losses of about 1% for the week after the government reported a decline in industrial profits, for the first time in 3 years. Markets in Japan and the EU also ticked lower for the week.
After sinking to multi-year lows on Monday, energy stocks rallied later in the week, bouyed by rising equity markets. The SPX energy sector rose 1.7% while the TSX energy basket gained 3.7%. Beaten-down small cap producers in Canada posted the best results. Midstream was the worst performing subsector this week on both sides of the border.
Tudor Pickering says the recent volatility in energy stocks "is reaching the point of ridiculousness," noting that now is a good time to wade back into energy stocks. The company's 2019 energy picks include Kinder Morgan, Anadarko Petroleum, Concho Resources, Diamondback Energy, Cimarex Energy, HollyFrontier and Marathon Petroleum. In Canada, Tudor remains bullish on Enerplus, NuVista Energy and Pembina Pipeline.
Goldman Sachs says they may have been overly optimistic on Suncor Energy in 2018, but is keeping the stock on its Buy list. Problems at Syncrude and the province's curtailment program has weighed on the Canadian major, leaving it "more vulnerable to negative consensus revisions." Goldman is also keeping Cenovus Energy on its Sell list, but says the company's outlook has improved.
Despite looming changes to shipping fuel sulphur standards, Goldman also remains positive on refiners in 2019, citing "relatively resilient" diesel margins, low inventories and cheap Canadian feedstock. The firm prefers Phillips 66 and Marathon Petroleum over Valero Energy due to upside potential from their non-refining operations. In the US integrated space, Goldman picks Chevon Corp over ExxonMobil, due to Exxon's heavy exposure to refining and chemicals.
|Suncor Energy||SU||37.84||▲4.2||35.53||55.47||D W|
|Imperial Oil||IMO||34.94||▲0.8||33.43||44.91||D W|
|Husky Energy||HSE||14.00||▲2.5||13.33||22.99||D W|
|Pembina Pipeline||PPL||40.33||▲0.1||37.60||47.84||D W|
|Inter Pipeline||IPL||19.21||▼-0.5||18.60||26.37||D W|
|Gibson Energy||GEI||18.22||▲3.6||15.68||23.32||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||32.81||▲3.9||30.11||49.08||D W|
|Cenovus Energy||CVE||9.38||▲4.1||8.74||14.84||D W|
|Vermilion Energy||VET||27.99||▼-1.5||26.67||50.46||D W|
|Pason Systems||PSI||17.80||▲0.2||16.05||24.57||D W|
|Mullen Group||MTL||11.91||▲0.3||11.39||16.93||D W|
|Secure Energy||SES||6.69||▲4.7||6.25||9.82||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||34.18||▲4.6||26.34||47.45||D W|
|Exxon Mobil||XOM||68.17||▲0.1||64.65||89.30||D W|
|Kinder Morgan||KMI||15.29||▼-1.8||14.62||19.83||D W|
|Williams Co||WMB||21.48||▼-1.4||20.36||33.67||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||87.52||▲0.3||82.04||133.53||D W|
|Occidental Petro||OXY||60.47||▲0.8||56.83||87.67||D W|
|Anadarko Petro||APC||43.20||▲0.6||40.40||76.70||D W|
|Concho Res||CXO||101.81||▲2.0||93.31||163.11||D W|
|Ntl-Oilwell Varco||NOV||25.77||▲2.1||24.27||49.08||D W|
|Baker Hughes||BHGE||21.44||▲2.7||20.09||37.76||D W|
|Marathon Petro||MPC||58.24||▲2.6||54.29||88.45||D W|
|Phillips 66||PSX||84.96||▲3.1||78.44||123.97||D W|
|Valero Energy||VLO||73.48||▲2.6||68.81||126.98||D W|
- Canadian and US markets closed for New Year's Day
- API Weekly Statistical Bulletin (holiday schedule)
- StatsCan Industrial Product and Raw Material Price Indexes (Nov 2018)
- StatsCan Labour Force Survey (Dec 2018)
- EIA Weekly Petroleum Status Report (holiday schedule)
- EIA Weekly Natural Gas Storage Report (holiday schedule)
- Baker Hughes Weekly Rig Counts.