Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending February 23, 2018:
  • Oil prices make a run for January highs ...
    ... as sentiment once again turns bullish
  • Canadian light differential drops below US$5
  • Canadian heavy differential remains in the doghouse
  • US crude exports near record levels
  • Wholesale gasoline prices spike to 30-month high
  • Canadian energy sector powers TSX higher
  • Exxon mulls the mother of all expansions in Beaumont
  • US refining stocks finally take a haircut.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • No new news on the geopolitical front this week.
USD INDEX
BEARISH
  • The US dollar staged a small rally as the Federal Reserve hints at four more rate hikes this year.
SUPPLY
BULLISH
  • The 70,000 bbl/day El Feel oilfield in Libya was shutdown again this week, reducing output from the OPEC member. Libyan production remains stuck below 1 million bbl/day due to ongoing disruptions.
DEMAND
NEUTRAL
  • No new news on the demand front this week.
SENTIMENT
BULLISH
  • Net longs in Brent futures continue to come off the record highs of late January, while WTI shorts are showing signs of easing.
  • Oil prices are holding above key support levels and appear to be headed back to the highs of late January.
CURRENCIES & BONDS

This week's Canadian economic data from Statistics Canada:

  • The consumer price index (CPI) rose 0.7% in January, dropping the annual inflation rate from 1.9% to 1.7%, ex-energy.
  • Retail sales declined 0.8% in December to $49.6 billion, bringing 2017 retail sales growth to 6.7%, the strongest in 20 years.
  • Wholesale sales declined 0.5% in December to $63 billion, the first drop in three months. For the full year 2017, wholesale sales are up 9.4% to $741 billion, highest growth rate since 1997.
  • Average weekly earnings were once again unchanged in December, averaging $993. For the full year 2017, earnings are up 2.3%.

Newly minted US Fed Chair Jerome Powell reiterated intentions to tighten interest rates through the end of 2018, causing bond yields to spike higher and markets to sell off on Wednesday. Economists are now expecting four rate hikes this year, raising the Fed funds rate from the current 1.5% to 2.5%. The next FOMC meeting is March 20, 2018.

Canadian bonds yields tumbled 3% on Friday, falling to 2.24%. In contrast, the US 10-year rose again this week, gaining another 0.3% to 2.88%.

The Euro experienced a pullback this week, falling almost 1% on disappointing economic data. The US dollar strengthened about 1% this week but remains below key support levels.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
67.31
63.55
63.70
58.75
35.55
44.82
42.53
40.88
39.64
30.41
70.53
66.14
64.73
59.14
44.22

Energy commodities all posted gains for the week, with both Brent and WTI rising over 3%. Canadian heavy oil prices gained 5.6% despite little change in discounts, averaging about US$28 per barrel. The differential on Canadian light crude narrowed to less than US$5, bring prices back to the highs of January.

Wholesale gasoline prices gained 3% to almost US$2/gallon, back to levels last seen in the summer of 2015. Natural gas prices also staged a nice rally this week, but remain well below the highs of January.

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)

US crude oil exports continue to strengthen, rising to 2 million bbl/day last week, just shy of the record 2.1 million bbl/day reached last October. US drillers added one new oil rig this week, rising to 799. In Canada, the number of oil rigs declined by 9 this week, falling to 209.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

FEB 22, 2018

MAJOR DRAWDOWNS IN CUSHING PULL US CRUDE INVENTORIES LOWER

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

Most global equity markets ended the week in the green, led by Brazil's Bovespa (+3.3%) and the Shanghai Stock Exchange (+3.3%). In North American markets, the TSX and NASDAQ were the best performers, led by Canadian energy and banking stocks, as well as big US technology names.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Most TSX energy components ended the week higher, led by producers. The US energy sector also gained on average 1% this week, held back by declines in refining stocks, despite impressive a jump in wholesale gasoline prices this week.

CANADIAN ENERGY NEWS

This week's notable Canadian energy news:

  • The Alberta Energy Regulator has approved TransCanada's (TRP) White Spruce Pipeline, which will transport additional volumes out of CNRL's (CNQ) Horizon Upgrader into the Grand Rapids pipeline network. TRP says the line will cost $200 million and should be in service sometime next year.
  • Gibson Energy (GEI) announced the sanctioning of its $50 million Viking pipeline project, designed to transport 13,300 bbl/day from the Viking oil field in central Alberta to the company's storage terminal in Hardisty, Alberta. The line is expected to be in service by the spring of 2019. Gibson's 2018 capital budget has now been increased from $135 million to $185 million.
  • Trinidad Drilling (TDG) has commenced a strategic review "in an effort to enhance shareholder value." Trinidad says its current share price does not reflect the value of the company. Among the options being considered are asset sales, partnerships, capital redeployment or a all-out sale of the company.
  • Calgary-based STEP Energy (STEP) announced the acquisition of privately-owned Tucker Energy Services for US$275 million in cash. To help finance the deal, STEP has issued 5.38 million new shares in bought-deal financing for total proceeds of $50 million. STEP says the deal will widen its footprint in US shale plays, particularly in Oklahoma.
  • Raging River Exploration (RRX) says fourth quarter and full year production averaged 23,670 and 22,850 boe/day, respectively. Total proved plus probable reserves increased 14% last year to 106.7 million boe, weighted 94% oil.
  • Proven plus probable reserves at Spartan Energy (SPE) grew 4% last year to 113.5 million boe. The company says production averaged 22,200 boe/day over the full year.
  • Cona Resources (CONA) announced a 6% increase in 2017 proved and probable reserves, rising to 129 million boe.
  • Pengrowth Energy (PGF) announced the appointment of Peter Sametz as President and CEO effective March 15, 2018. Sametz replaces current CEO Derek Evans.

This week's fourth quarter earnings on the TSX:

  • Pembina Pipeline (PPL) reported fourth quarter earnings of $445 million, up from $131 million for the previous year. Revenues rose 37% in Q4 to $1.72 billion. The company says it placed $4.8 billion in new projects into service last year, including those acquired from Veresen, helping it reach record volumes and margins in the fourth quarter.
  • Trican Well Service (TCW) reported an adjusted operating income of $183 million for the full year 2017, versus a $37.4 million loss the previous year. Fourth quarter profits declined to $17.2 million, down from $56 million for the same time last year. The company says it saw strong demand in Q3 and into Q4, but utilization rates waned through the end of the year. TCW stock was this week's worst performer among TSX names, falling over 13%.
  • Western Energy Services (WRG) reported a net loss of $5 million in Q4, narrower than a $15.5 million loss for the same time last year. Fourth quarter revenues rose almost 50% to $66.5 million. The company's 2018 capital budget was left unchanged at $20 million, including $12 million for maintenance capital.
  • Fourth quarter revenues at Perpetual Energy (PMT) rose 23% y/y to $25.5 million while cash flow from operations more than doubled to $11 million. The company recorded a Q4 loss of $6.5 million, including a $4.7 million impairment charge on the company's investment in Tourmaline Oil (TOU).
  • Enerplus (ERF) reported a $15.3 million profit in Q4, including a $46.2 million gain related to US tax reform. For the full year 2017, production averaged 84,700 boe/day, mostly from the Williston Basin and Marcellus shale plays.
US ENERGY NEWS

This week's notable US energy news:

  • French energy major Total (TOT), Borealis and NOVA Chemicals have formed a joint venture for various petrochemical projects in Texas. The new JV includes Total's existing 400,000 tons/yr polyethylene plant in Bayport, a new 625,000 tons/yr polyethylene unit at the same facility and a 1 million tons/yr ethane steam cracker already under construction in Port Arthur. Total will own 50% of the new entity while NOVA and Borealis will own the remaining half.
  • General Electric (GE) now says it remains committed to Baker Hughes (BHGE), squashing speculation it was planning to sell the business unit. BHGE was formed in the middle of last year, creating the world's second largest oilfield services provider. GE has been under pressure to revive its business by divesting about US$20 billion in assets to raise cash.
  • Schlumberger (SLB) and Subsea 7 (OSLO:SUBC) are mulling the formation of a joint venture to deliver subsea installations, maintenance and repair services. The news has led many to speculate a full-blown corporate merger of the two companies could be in the works.
  • According to Reuters, US regulators are set to approve ExxonMobil's (XOM) planned expansion of it 362,300 bbl/day Beaumont refinery in Texas. The expansion will likely include the addition of a third crude distillation unit. According to sources, XOM is looking at doubling refinery capacity over the next 4 years, which would make it the largest refinery in the US.

In the midstream space this week:

  • Energy Transfer Partners (ETP) has pushed back the start date for its troubled Rover pipeline to the second quarter of this year, potentially three months later than originally planned. The 3.25 Bcf/day natural gas pipeline connects Appalachian shale gas to markets in Ohio, Michigan and Ontario. ETP is also mulling the construction of a new pipeline, running from the Permian basin to Nederland, Texas.
  • Plains All American (PAA) has wrapped up open season on its  585,000 bbl/day Cactus II Pipeline, which will run from the Permian Basin to the Corpus Christi/Ingleside area in Texas. The company says the line now has 525,000 bbl/day of long-term volume commitments. Cactus II is expected to cost US$1.1 billion and should be operational by the third quarter of 2019.
  • EQT Corp (EQT) announced plans to split up its upstream and midstream business units, creating a new publicly-traded entity for its midstream holdings, which will also include assets from newly acquired Rice Energy. EQT shareholders will retain their shares and receive a pro-rata share of the new midstream company.
  • Oneok (OKE) announced plans to invest US$2.3 billion over the next two year on natural gas infrastructure projects including new NGL pipelines, a fractionation plant in Mont Belvieu and a gas processing facility in North Dakota.
  • American Midstream Partners (AMID) announced an agreement to sell its refined products terminalling business to DKGP Energy Terminals for US$138.5 million in cash. DKGP Energy Terminals is a joint venture between Delek Logistics Partners (DKL) and Green Plains Partners (GPP).

This week's fourth quarter earnings:

  • Chesapeake Energy (CHK) reported a net income of US$334 million for the fourth quarter. Full year 2017 production averaged 547,800 boe/day, up 3% from the previous year. Capital expenditures are expected to be in the range of US$1.975 to US$2.375 billion this year, down 12% from last year.
  • Energy Transfer Partners (ETP) reported a net profit of US$1.1 billion in the fourth quarter, including a US$1.5 bilion gain on US tax reform. Revenues rose 31% y/y to US$8.6 billion.
  • Fourth quarter revenues at Cheniere Energy (LNG) more than tripled to US$1.75 billion, while net profits rose 15% y/y to US$127 million.
  • Devon Energy (DVN) reported a fourth quarter profit of US$183 million, down from US$207 million for the same quarter last year. Full year production averaged 548,000 boe/day, about 14,000 bbl/day short of guidance. For the full year 2018, the company expects to average between 552,000 and 576,000 boe/day.
  • Noble Energy (NBL) posted a net profit of US$494 million for the fourth quarter. Revenues rose 19% to US$1.2 billion.
  • Whiting Petroleum (WLL) reported a net loss of US$798 million for the fourth quarter, including a US$835 million impairment charge on the sale of its Colorado assets. Production rose 8% to 128,050 boe/day. The company says 70% of it 2018 production is hedged.
  • Net losses at Cabot Oil and Gas (COG) narrowed to US$44 million in the fourth quarter, down from a US$293 million loss for the same quarter last year. Operating revenue rose to US$400 million. The company booked a US$243 million gain on US tax reform.
  • TC Pipelines (TCP) reported a net income of US$66 million for the fourth quarter and US$252 million for the full year 2017. The company also announced the appointment of Nathan Brown as President and Director, replacing Brandon Anderson effective May 1, 2018.
  • Apache (APA) reported a 9% increase in Q4 revenues, rising to US$1.6 billion. Net income rose to US$456 million, up from a US$182 million loss the previous year. The company produced 440,000 boe/day in Q4.
  • Energen (EGN) reported a fourth quarter net income of US$262 million, including a US$240 million gain related to US tax reform. Revenues more than doubled to about US$272 million.
  • Net losses at Teekay Corp (TNK) widened to US$13.7 million in Q4 as revenues declined 35% to US$327 million. The company says it is at a "positive inflection point" and is "well-positioned to benefit from an energy market recovery."
  • Camp-operator Civeo (CVEO) reported a net loss of US$47.6 million in the fourth quarter, versus a loss of US$16 million for the same quarter last year, while revenues rose 11% y/y to US$101 million. The company says higher commodity prices should increase occupancy rates in its core markets.

Around the world this week:

  • A UK subsidiary of Valero Energy (VLO) has agreed to buy the SemLogistics Milford Haven fuel storage facility on the west coast of Wales, located just across Valero's Pembroke refinery. The tank farm has a crude oil and product storage capacity of 8.5 million barrels. Terms of the deal were not disclosed.
  • The Turkish navy has threatened to sink a drilling ship, operated by Saipem on behalf of Eni (E). The drilling vessel was exploring in the Exclusive Economic Zone (EEZ) of Cyprus. Eni has agreed to move the drilling vessel but will not abandon its field in Cyprus, jointly owned with Total (TOT). Cyprus says it will protest the move in international forums.
  • Anadarko Petroleum (APC) announced an agreement to supply LNG to French utility Électricité de France out of its jointly owned Mozambique LNG1 facility. Under terms of the deal, Anadarko will supply 1.2 million tons/yr of LNG through 2033.
  • ExxonMobil (XOM) acquired 2.5% stake in the BTC pipeline, which ships oil from various Azerbaijani oilfields to Turkey via Georgia. Terms of the deal were not disclosed.
MARKET TECHNICALS
BULLISH INDICATORS
TSX
S&P 500
TOP 5
GAINERS
• Birchcliff Energy (BIR)
• CES Energy Solutions (CEU)
• Enerflex (EFX)
• Enerplus (ERF)
• Peyto Exploration (PEY)
• Baker Hughes (BHGE)
• Chesapeake Energy (CHK)
• Hess Corp (HES)
• Noble Energy (NBL)
• Transocean (RIG)
12-MO
HIGHS
• Enerplus (ERF) • None
ALL-TIME
HIGHS
• None • None
GOLDEN
CROSSES
• Crescent Point (CPG) • None
BEARISH INDICATORS
TSX
S&P 500
TOP 5
LOSERS
• Enbridge (ENB)
• Enbridge Income Fund (ENF)
• Imperial Oil (IMO)
• Keyera (KEY)
• Trican Well (TCW)
• Andeavor (ANDV)
• Apache (APA)
• Devon Energy (DVN)
• Marathon Petroleum (MPC)
• Newfield Exploration (NFX)
12-MO
LOWS
• Imperial Oil (IMO) • Apache (APA)
• Newfield Exploration (NFX)
ALL-TIME
LOWS
• None • None
DEATH
CROSSES
• Inter Pipeline (IPL) • None
ANALYST RATINGS

UPGRADES

  • Chevron (NYSE:CVX): Upgraded from Underperform to Neutral at BNP Paribas.
  • Cimarex Energy (NYSE:XEC): Upgraded from Hold to Buy at KLR Group.
  • Devon Energy (NYSE:DVN): Upgraded from Hold to Buy at KLR Group.
  • Gibson Energy (TSX:GEI): Upgraded from Neutral to Outperform at Credit Suisse.
  • Newfield Exploration (NYSE:NFX): Upgraded from Hold to Buy at KLR Group.
  • PetroChina (NYSE:PTR): Upgraded from Equal Weight to Overweight at Morgan Stanley.
  • Plains GP (NYSE:PAGP): Upgraded from Neutral to Buy at Seaport Global Securities.
  • SM Energy (NYSE:SM): Upgraded from Neutral to Positive at Citigroup.
  • Trinidad Drilling (TSE:TDG): Upgraded from Hold to Buy at GMP Securities.

DOWNGRADES

  • EQT GP (NYSE:EQGP): Downgraded from Buy to Neutral at Seaport Global Securities.
  • Kinder Morgan Canada (TSX:KML): Downgraded from Action Buy List to Buy at TD Securities.
  • Raging River Exploration (TSX:RRX): Downgraded from Outperform to Market Perform at Raymond James.
  • Rice Midstream Partners (NYSE:RMP): Downgraded from Outperform to Market Perform at Wells Fargo & Co.
NEXT WEEK'S EVENTS

Monday:

  • Royal Dutch Shell's LNG Outlook webcast @ 10:00am ET
  • Round 7 of NAFTA talks continue in Mexico City
  • Q4/2017 earnings: PrairieSky Royalties
  • March contract expiry for Henry Hub

Tuesday:

  • Finance Minister Bill Morneau tables federal budget
  • API Weekly Statistical Bulletin released at 4:30pm ET
  • Fed Chair Jerome Powell delivers testimony in front of US House Financial Services Committe
  • Q4/2017 earnings: ONEOK

Wednesday:

  • January industrial product and raw materials price indexes released by StatsCan @ 8:30am
  • US Q4/2017 GDP (second reading) released @ 8:30am ET.
  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • EIA Petroleum Supply Monthly (December data)
  • Q4/2017 earnings: Pengrowth Energy
  • Contract expiry for gasoline, AECO (March contracts) and Brent (April contract)

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30pm ET
  • Q4/2017 earnings: CNRL, Husky Energy, Vermilion Energy, Calfrac Well Service, Secure Energy Services, CES Solutions, Altagas

Friday:

  • Q4 GDP growth rate released by StatsCan @ 8:30am
  • Baker Hughes Rig Count released @ 1:00pm ET
UPDATED: EVERY WEEKEND
NOTES:
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SHARE PRICE CHANGES (INCL. NEW HIGHS & LOWS) EXCLUDE DIVIDENDS
  • SECTOR & SUBSECTOR PERFORMANCES WEIGHTED BY MARKET CAP
  • GOLDEN CROSS: 10-WK SMA CROSSES ABOVE 40-WK SMA
  • DEATH CROSS: 10-WK SMA CROSSES BELOW 40-WK SMA
  • CANADIAN EXCHANGE RATES REPRESENT END-OF-DAY CLOSE
  • 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
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