Energy stocks fail to respond to higher oil prices, as global headwinds persist
This week's Canadian economic data from Statistics Canada:
About 94,000 new jobs were created in November, mostly full-time positions, split almost evenly among Quebec, Alberta, Ontario and BC. The national unemployment rate declined 0.2 basis points to 5.6%. Alberta's unemployment rate tumbled from 7.3% to 6.3%, but remains the highest outside of Atlantic Canada.
Canada's exports declined 1.2% in October, mainly due to lower crude prices. Imports declined 0.6% due to lower vehicle imports. The national trade deficit widened from $891 million in September to $1.2 billion in October.
Bank of Canada Governor Stephen Poloz warned of many "negative" headwinds that threaten the Canadian economy, ratcheting down expectations for future rate hikes. The list of concerns include the recent slump in the oil patch, slowing trade with China and uncertainty over business investment. Poloz says the economy still has room to grow without sparking inflation. The bank kept its rate unchanged at 1.75% this week.
This week's notable US economic data:
After rising by 237,000 in October, the US Labor Department reported 155,000 new jobs created in November, far short of expectations. The unemployment rate was unchanged at a 49-year low of 3.7%. Average hourly earnings rose 0.2%, reducing the annualized increase to 3.1%.
The US trade deficit widened for the fifth month in a row, rising from US$54.6 billion in September to US$55.5 billion in October, the largest since October 2008. Exports declined 0.1%, while imports rose 0.2%.
An inverted US yield curve rattled global markets this week, pulling bond yields lower around the world. The rate on 5-year treasuries ended Friday at 2.70%, slightly below 2-year notes, which closed at 2.72%.
The "official" yield curve, defined as the difference between 10 and 2 year bonds, remains positive but flattened considerably this week, falling to 0.13%. Inverted yields curves warn of slowing economic activity, often leading to a recession. The last time the yield curve fell below zero was in January 2006 (10 vs 2-year), about one year before the last recession.
Yields in the UK, Japan, Germany and Canada also declined this week. Canada's 10-year rate fell to 2.08%, well below the US 10-year rate of 2.85%.
The Aussie dollar was the worst performer in currency markets this week, falling 1.5% due to falling iron ore and copper prices. The Euro, yen and Swiss franc gained almost 1%. The loonie fell sharply on Thursday but recovered on Friday, ending the week 0.3% lower.
Alberta announced plans to reduce the province's output by 325,000 bbl/day starting in January. The province says the cuts would include output from the oil sands and conventional crude, but not condensate. About 150,000 bbl/day of "less economic" barrels have already been curtailed in the province, which will count towards the total goal.
OPEC and friends have agreed to remove 1.2 million bbl/day of crude from oil markets in the new year, as measured from October’s output. The cuts will be spilt 800,000 bbl/day for OPEC members and 400,000 bbl/day for non-OPEC producers, with Russia accounting for more than half of those volumes. Individual quotas for each country were not disclosed. This latest round of cuts will be in effect for six months.
According to the US Energy Information Administration (EIA), crude exports surged above 3 million bbl/day last week for the first time in US history.
According to Baker Hughes, 10 oil rigs were taken out of service in the US this week, bringing the total to 877. Canada also lost 17 rigs, falling to 102. In the natural gas sector, 13 new rigs were put into service on both sides of the border.
Canada's heavy and light oil differentials to WTI narrowed again this week in response to lower output from Alberta and improved demand from the US. The discount on Western Canadian Select (WCS) narrowed by U$8.50, to about US$20/bbl, while the discount on Canadian Light narrowed by US$13 to US$9.80/bbl. The Edmonton Condensate (C5+) discount also declined by over US$3.50, falling to less than US$9 on Friday.
Gasoline rose almost 6% for the week, while heating oil gained about 3%. In natural gas markets, Henry Hub declined over 2% while AECO gas fell 30%.
Falling bond yields and renewed concerns over US/China relations rattled equity markets this week. The NYSE declined just over 4% while the Nasdaq gave back 5%. The S&P 500 and Dow Jones Industrial declined about 4.5%.
European markets also ended the week about 4% lower while the TSX declined 2.7%. Utilities and precious metals were the only winners in North American equity markets this week.
The TSX energy sector had a volatile week but recovered on Friday, ending the week 0.2% lower, its tenth consecutive weekly decline. Heavy-weights Canadian Natural Resources and Cenovus Energy were the only large-cap producers to end the week in the positive. Many small-cap E&P names hit new multi-year lows during the week.
The S&P 500 energy basket declined over 3% for the week, with services stocks and refiners suffering the worst losses.
|Suncor Energy||SU||41.88||▼-2.2||40.49||55.47||22||D W|
|Imperial Oil||IMO||37.46||▼-5.3||33.43||44.91||30||D W|
|Husky Energy||HSE||16.13||▼-2.2||15.30||22.99||21||D W|
|Pembina Pipeline||PPL||43.26||▼-3.4||37.60||47.84||63||D W|
|Inter Pipeline||IPL||20.92||▼-2.1||20.68||27.92||30||D W|
|Gibson Energy||GEI||19.58||▼-8.3||15.68||23.32||83||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||35.83||▲7.3||32.08||49.08||32||D W|
|Cenovus Energy||CVE||10.16||▲3.5||9.03||14.84||19||D W|
|Vermilion Energy||VET||31.23||▼-5.5||30.55||50.46||13||D W|
|Pason Systems||PSI||19.20||▼-3.7||16.05||24.57||42||D W|
|Mullen Group||MTL||12.35||▲0.4||12.04||16.93||21||D W|
|Secure Energy||SES||7.10||▼-1.4||6.72||9.82||31||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||36.88||▼-5.8||25.13||47.45||84||D W|
|Exxon Mobil||XOM||77.64||▼-2.3||72.16||89.30||59||D W|
|Kinder Morgan||KMI||16.35||▼-4.2||14.69||19.83||55||D W|
|Williams Co||WMB||24.48||▼-3.3||23.54||33.67||43||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||103.61||▲0.3||96.54||133.53||42||D W|
|Occidental Petro||OXY||66.54||▼-5.3||62.47||87.67||25||D W|
|Anadarko Petro||APC||52.06||▼-1.6||46.80||76.70||14||D W|
|Concho Res||CXO||122.41||▼-6.1||117.74||163.11||33||D W|
|Ntl-Oilwell Varco||NOV||29.81||▼-7.2||29.73||49.08||6||D W|
|Baker Hughes||BHGE||21.66||▼-5.1||21.05||37.76||2||D W|
|Marathon Petro||MPC||61.56||▼-5.5||60.64||88.45||19||D W|
|Phillips 66||PSX||90.35||▼-3.4||88.99||123.97||21||D W|
|Valero Energy||VLO||75.99||▼-4.9||75.55||126.98||5||D W|