Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending August 24, 2018:
  • Suncor's Edmonton refinery hit by power outage
  • Burnaby loses another battle against Trans Mountain
  • Cdn crude-by-rail exports reach record high in June
  • TSB ponders accelerating new rail car regulations
  • Raging River Exploration fades into the sunset
  • Irving Oil extends reach into Ireland
  • Ontario public sector union buys Texas pipeline
  • Another mega-plastics plant breaks ground in USGC
  • Total officially pulls out of Iran ...
    ... while China doubles down on Iranian imports
  • Norway reconsiders divestiture of energy stocks
  • Saudis cancel plans for world's largest IPO
  • Oil prices halt 2-month slide.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • Tensions between China, Iran and the Trump Administration continue to hang over oil markets.
USD INDEX
BULLISH
  • The US dollar retreated this week, returning to its break-out point of 95.
SUPPLY
BULLISH
  • Production out of the Niger Delta region was disrupted again this week after a line rupture spilled an undisclosed volume of crude. The pipeline has export capacity of 100,000 bbl/day but affected volumes and duration of the outage was not confirmed.
  • Talks between Total and its North Sea workers' union broke down this week, putting up to 70,000 bbl/day of production at risk. The union plans to continue strike action at the beginning of September.
  • According to Jefferies, tanker loadings out of Iran are down about 700,000 bbl/day in the past month due to pending US sanctions on crude sales.
DEMAND
NEUTRAL
  • No new news on the demand front.
SENTIMENT
NEUTRAL
  • Net longs continue to unwind for both Brent and WTI futures. The number of shorts in managed money contracts ticked higher for WTI but remain subdued for Brent.
  • After 2-months of weekly declines, WTI posted its first gain this week, inching closer to the US$70/bbl mark. Brent also topped the key US$75 resistance level.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • Wholesale sales declined for the second time in three months, falling 0.8% to $63.1 billion in June. Sales were down in five of seven subsectors.
  • Retail sales also dipped 0.2% in June, falling to $50.7 billion. After a 5.2% jump in May, sales at gasoline stations dropped 2.3% in June, due to lower prices at the pump and a 0.4% drop in sales volumes.
  • The number of Canadians collecting Employment Insurance (EI) benefits rose 0.8% in May, led by gains in Quebec and Nova Scotia. Ontario and Alberta were unchanged. The number of new claims rose 3.7% in May, with increases seen across most provinces.

ATB Financial is forecasting real GDP growth of 2.6% in Alberta this year, falling to 2.2% in 2019 and 2.1% in 2020. The bank says the province can expect "steady but sluggish improvements" in Alberta's economy, with US trade relations posing the biggest risk.

Speaking in Jackson Hole this week, US Fed Chair Jerome Powell says he's not worried about inflation, despite continued strength in the US economy. Powell tells economists there's no reason not to expect gradual increases in interest rates.

The US dollar retreated this week, helping boost the Euro by 1.5%. The US yield curve (10 - 2 yr) broke down to a new low of 0.19%, as longer duration bonds corrected again this week.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
75.82
68.72
66.87
59.47
41.97
50.27
45.96
47.17
43.56
30.41
79.80
74.15
71.40
69.32
56.21

West Texas Intermediate (WTI) posted its first weekly gain since the end of June. Gasoline prices also rebounded almost 5% this week.

ATB Financial is sticking to its WTI forecast of around US$66 per barrel in 2018, with Western Canadian Select (WCS) trading closer to US$42. The bank says although there is some progress on pipelines, uncertainty remains over future transportation infrastructure, which will continue to restrain prices for Canadian heavy crude and hold-back investments in the energy patch.

ATB also says it sees no signs of life in Alberta's natural gas prices, with AECO expected to average just under US$1.60/MMBtu this year, versus a Henry Hub forecast of US$2.80.

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)

According to the National Energy Board (NEB), crude-by-rail exports to the US reached a record 205,000 bbl/day in June.

The US lost 9 oil rigs last week, the biggest weekly decline since May 2016, falling to 860 on Friday. Canada added 12 new oil rigs, bringing the total to 153.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

Aug 22, 2018

PRODUCT STOCKPILES RISE OVER 3M BBLS AS US REFINERIES RUN FLAT OUT

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

Most global markets posted gains for the week, including China, Japan and core Eurozone indices. In US markets, the S&P 500, Nasdaq and Russell 2000 hit new record highs. The TSX managed to eke out a small gain, mostly on higher oil prices and big moves in cannabis stocks.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Despite a drop in bond yields, midstream stocks were the only losing subsectors this week on both the TSX and S&P 500, dragged lower by heavy-weights Enbridge (ENB) and Williams Co (WMB).

CANADIAN ENERGY NEWS

This week's Canadian energy news:

  • The Supreme Court of Canada has refused to hear an appeal by the City of Burnaby in its case against Kinder Morgan Canada's (KML) Trans Mountain pipeline expansion (TMEP). The Vancouver suburb was seeking to overturn the NEB's decision to allow KML to bypass some of its municipal bylaws, which was previously rejected by a BC court. Alberta Premier Rachel Notley says her government is "batting a thousand" when it comes to fighting for the pipeline expansion. This latest decision marks the 17th straight legal win in favour of TMEP. The project still faces several other legal challenges, including one from the province of BC and several First Nations communities. 
  • Another power outage hit Suncor Energy's (SU) Edmonton Refinery on Tuesday afternoon, shutting the entire 142,000 bbl/day facility. The company has since restarted the refinery but declined to comment on any disruptions to production or fuel deliveries to its Petro-Canada gas stations.
  • In its latest report to the Canadian Parliament, the Transportation Safety Board of Canada (TSB) warns that the volume of flammable liquids being transported across North America's rail network is "expected to remain significant," forcing Transport Canada to consider accelerating plans to phase out old rail cars. Under the current timelines, only Class 117 rail tankers will be allowed for the transportation of flammable liquids after April 2025. The TSB says they've increased number of regulatory inspections on key rail lines, and says good progress has been made on improving safety during the transportation of dangerous goods.
  • Irving Oil announced the acquisition of Tedcastle, an Dublin-based distributor of home heating oil, jet fuel, gasoline and diesel in Ireland. The company says this acquisition will help it further expand its business across the Atlantic basin, having previously purchased Ireland’s only refinery back in 2016. Financial terms of the deal were not disclosed.
  • Questerre Energy (QEC) announced plans to launch a legal challenge against the Quebec government's hydraulic fracturing ban, which essentially prohibits the production of natural gas in the province. Questerre and the former Talisman Energy suspended an exploration program in 2010, which aimed to assess the size of the province's Utica shale deposit in the St. Lawrence Lowlands. The company says some of Quebec's fracking assumptions are contrary to published independent scientific studies and beyond the legal power and authority of the province. Questerre stock plunged to penny-stock status after the Quebec government announced plans to impose a fracking ban last June. The Utica shale, which lies underneath the Marcellus Shale, can be found in most northeastern US states, extending into parts of Quebec and Ontario.
  • The province of Nova Scotia and the government of Morocco have teamed up to collaborate on data sharing and technology transfer for offshore oil development in each country. Nova Scotia and Morocco were joined as one land mass 200 million years ago, which means the regions likely share the same geology and perhaps similar petroleum resources. This latest agreement is part of the province's on-going Offshore Growth Strategy. The government estimates there is more than 120 trillion cubic feet of gas and 8 billion barrels of oil off the coast of Nova Scotia.

This week's Canadian investing news:

  • Shareholders from Baytex Energy (BTE) and Raging River Exploration (RRX) have voted overwhelmingly in favour of merging the two companies, allowing the transaction to officially close this week. The new Baytex has revised their 2018 production guidance to about 80,000 bbl/day, with Q4 production expected to be closer to 98,000 bbl/day. Ratings agency S&P raised Baytex's debt rating from BB- to BB, with a Stable outlook. 
  • Enbridge (ENB) sweetened its offer for its US MLP Spectra Energy Partners (NYSE:SEP) by almost 10% from its previous offer. The company says recent changes in the US tax structure has "affected the growth opportunities for MLPs," including Spectra. SEP shareholders will now receive 1.111 ENB shares, valuing the deal at about $4.3 billion.
  • Toronto-based Brookfield Business Partners (BBU.UN) and Macquarie Capital have agreed to sell Australian producer Quadrant Energy to Australia's Santos Ltd for US$2.15 billion. The deal includes a contingent payment related to the Dorado-1 oil discovery, said to be one of the largest discoveries off the coast of Western Australian in over two decades.
US ENERGY NEWS

This week's notable US energy news:

  • OMERS Infrastructure Management, the investment arm of Ontario's public sector employees, has agreed to acquire a 50% stake in the BridgeTex Pipeline Company for $1.438 billion. The 400,000 bbl/day BridgeTex pipeline runs from West Texas to refineries in Houston and Texas City, as well a Houston marine export terminal. The pipeline is co-owned by Plains All American (PAA) and Magellan Midstream Partners (MMP), who will continue to operate the asset. The line will be expanded to 440,000 bbl/day early next year.
  • LyondellBasell (LYB) announced the start of construction on the world's largest propylene oxide (PO) and tertiary butyl alcohol (TBA) plant. The US$2.4 billion facility, located in the Houston area, will produce 470,000 tons of PO and 1 million tons of TBA annually. Start-up is expected in 2021. This latest addition is part of LYB's US$5 billion plan to grow its chemicals business in the US Gulf Coast.
  • Federal regulators have cleared the Rover natural gas pipeline for two more laterals in Pennsylvania. Operator Energy Transfer Partners (ETP) say this latest approval allows for 100% of contract commitments to begin on the first of September. The 713-mile pipeline will transports 3.25 Bcf/day of gas from the Marcellus and Utica shale into US markets and the Union Gas Dawn Storage Hub in southern Ontario.
  • After a two-month boycott, China’s Unipec says it will resume purchases of US crude oil in October. The Chinese government had put US crude on its list of retaliatory tariffs, which had negatively impacted the country's refineries. Unipec is the trading arm of China's Sinopec (SNP). Trade talks between China and the Trump Administration remain on shaky ground, leaving most analysts to expect China to reinstate tariffs on US crude sometime later this year. China recently overtook Canada as the world's largest importer of US crude, averaging about 350,000 bbl/day earlier this year. 
  • The US Department of Energy has offered to sell 11 million barrels of sour crude from its Strategic Petroleum Reserves (SPR). Total US SPR holding are estimated at about 660 million barrels of crude. The 11 million barrel release represents about 1 day of total US production, enough for its refineries to operate for about 8 hours.
GLOBAL ENERGY NEWS

Around the world this week:

  • Saudi Aramco has reportedly shelved plans to IPO a 5% stake, as it now shifts focus to taking a stake in Saudi Basic Industries Corp (SABIC). The state-owned energy behemoth is worth an estimated US$2 trillion, which would have made the sale the largest IPO in history.
  • ConocoPhillips (COP) and Venezuela's PDVSA reached an agreement to settle US$2 billion in compensation awarded to COP over the nationalization of the company's assets in 2007. Under terms of the agreement, Venezuela will make an initial US$500 million payment within 90 days, with the balance to be paid quarterly over the next 54 months. In exchange for the deal, ConocoPhillips has agreed to suspend all of its legal actions. Venezuela's PDVSA also reached similar deals with Exxon Mobil (XOM) and NuStar Energy (NS) this week.
  • Talks between Total (TOT) and its Unite trade union in the UK broke down this week. A major sticking point is the company's rotation schedule for workers at its North Sea platforms. Relations have been further strained by Total's recent purchase of Maersk Oil, which has resulted in variations among workers' contracts. Total says it will continue talks on an individual basis. The affected facilities produce about 70,000 bbl/day of oil, with more strike action planned at the beginning of September. 
  • Total (TOT) also confirmed its withdrawal from the US$4.8 billion South Pars Iranian gas project, conceding failure in its efforts to be exempted from US sanctions. The company says "despite the backing of the French and European authorities such waiver could not be obtained." Total and China's CNPC had a majority stake in the South Pars, said to be the world’s largest gas field, shared with neighbouring Qatar. The French energy major would like CNPC to take over their share of the project, but CNPC has yet to confirm its intentions. 
  • Chinese buyers of Iranian crude will be using Iranian tankers for shipments, owned by National Iranian Tanker Co (NITC). The country plans to keep importing crude from Iran despite President Trump's decision to reinstate sanctions. The sanctions make it almost impossible for tanker operators to obtain insurance for transport. The US State Department says they are aware of China's plan to continue dealing with Iran, but remain committed to enforcing the sanctions. China imported about 623,000 bbl/day of Iranian crude in 2017.
  • A commission appointed by the Norwegian government has advised against the country's planned divestiture of oil and gas stocks. Late last year, Norway's central bank announced plans to cut its exposure to oil price fluctuations by reducing its holdings in energy stocks. The commission says the move would reduce the diversity of the country's US$37 billion sovereign wealth fund, which in turn may reduce returns. As an alternative, the think-tank recommends reducing the public's stake in Equinor (EQNR), which is 67% owned by the Norwegian state. The government has yet to make any final decisions.
  • Royal Dutch Shell's (RDS.A) Forcados pipeline in Nigeria has been shut-in due to a rupture in the line, which spilled an undisclosed volume of crude. Forcados exports about 100,000 bbl/day from the Niger Delta Region but the company did not confirm the extent of the outage. The cause of the incident is still under investigation.
  • The Brazilian government announced plans to relax local content requirements for companies interested in developing its offshore Libra oilfield, lowering the percentage of equipment and services that must be sourced locally. Brazil hopes to attract US$16B in investment in the pre-salt oil play, which is already being developed by PetroBras (PBR), Total (TOT), Royal Dutch Shell (RDS.A) and China’s CNPC and CNOOC (CEO).
MARKET TECHNICALS
BULLISH INDICATORS
TSX
S&P 500
TOP 5
  • Raging River (RRX +19.1%)
  • Baytex Energy (BTE +18.7%)
  • Trican Well (TCW +14.5%)
  • CES Energy Solutions (CEU +13.3%)
  • MEG Energy (MEG +12.1%)
  • Range Resources (RRC +12.1%)
  • Transocean (RIG +9.5%)
  • Marathon Petroleum (MPC +8.7%)
  • Valero Energy (VLO +8.6%)
  • TechnipFMC (FTI +8%)
  • 12-MO
    HIGHS
  • Enbridge Income Fund (ENF +0.9%)
  • Precision Drilling (PD +7.5%)
  • Marathon Petroleum (MPC +8.7%)
  • Andeavor (ANDV +7.2%)
  • 10-YR
    HIGHS
  • None
  • Marathon Petroleum (MPC +8.7%)
  • Andeavor (ANDV +7.2%)
  • GOLDEN
    CROSSES
  • None
  • Newfield Exploration (NFX +5.7%)
  • BEARISH INDICATORS
    TSX
    S&P 500
    BOTTOM
    5
  • Parkland Fuel (PKI -4.2%)
  • Husky Energy (HSE -2.2%)
  • Enbridge (ENB -1.5%)
  • Pembina Pipeline (PPL -1.3%)
  • Altagas (ALA -0.7%)
  • Williams Co (WMB -1.3%)
  • 12-MO
    LOWS
  • None
  • None
  • 10-YR
    LOWS
  • None
  • None
  • DEATH
    CROSSES
  • Baytex Energy (BTE +18.7%)
  • None
  • ANALYST RATINGS

    UPGRADES

    • Baker Hughes (NYSE:BHGE): Upgraded from Neutral to Buy at B. Riley.
    • Baytex Energy (TSX:BTE): Upgraded from Sector Perform to Outperform at Scotiabank and from Neutral to Outperform at CIBC.
    • Diamondback Energy (NASDAQ:FANG): Upgraded from Hold to Buy at Williams Capital.
    • Energy Transfer Equity (NYSE:ETE): Upgraded from Hold to Overweight at US Capital Advisors.
    • Energy Transfer Partners (NYSE:ETP): Upgraded from Hold to Overweight at US Capital Advisors.
    • National Oilwell Varco (NYSE:NOV): Upgraded from Hold to Buy at RF Lafferty.
    • Plains All American Pipeline (NYSE:PAA): Upgraded from Hold to Overweight at US Capital Advisors.
    • Sempra Energy (NYSE:SRE): Upgraded from Market Perform to Outperform at Wells Fargo.
    • Weatherford International (NYSE:WFT): Upgraded from Sell to Buy at Tudor Pickering.

     

     

     

     

    DOWNGRADES

    • Just Energy (TSX:JE): Downgraded from Outperform to Sector Perform at National Bank.
    • Mammoth Energy Services (NASDAQ:TUSK): Downgraded from Outperform to Market Perform at Raymond James.
    • Phillips Partners (NYSE:PSXP): Downgraded from Overweight to Neutral at JPMorgan Chase.
    • Valero Energy Partners (NYSE:VLP): Downgraded from Overweight to Neutral at JPMorgan Chase.
    • Williams Companies (NYSE:WMB): Downgraded from Buy to Hold at US Capital Advisors.

     

     

     

     

     

    NEXT WEEK'S EVENTS

    Wednesday:

    • June GDP by industry and Q2 figures released by StatsCan @ 8:30am ET
    • EIA Weekly Petroleum Status Report released @ 10:30am ET
    • US Q2 GDP growth estimate (second reading)
    • Last trading day for Henry Hub September contract

    Thursday:

    Friday:

    • July Industrial Product and Raw Materials Price Indexes released by StatsCan @ 8:30am ET
    • Petroleum Supply Annual released by the EIA
    • Baker Hughes Rig Count released @ 1:00pm ET
    • Last trading day for gasoline (September contract) and Bent (October contract)
    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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