Weekly Energy Market Review

Weekly Energy Market Review

This week's Energy Market Summary for the week ending September 7, 2018:
  • Suncor warns future growth contingent on new pipelines
  • MEG hints at Christina Lake expansion beyond 2020
  • Imperial Oil signs partnership with McKay Métis
  • Cenovus inks deal for more crude-by-rail
  • Kinder Morgan hints at full exit from Canada
  • Crescent Point cuts staff and plans asset sales
  • Discount on Cdn Light blows out to almost US$16/bbl
  • Halliburton warns of "moderating" demand out of the Permian
  • America's plan to swap Iranian oil imports with US crude
  • Iraqi production hits record high
  • World oil demand to hit 100 Mbbl/day later this year.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
NEUTRAL
  • Status quo on the geopolitical front this week.
USD INDEX
NEUTRAL
  • The US dollar eked out a small gain late in the week, ending Friday 0.3% higher.
SUPPLY
BEARISH
  • OPEC production averaged 32.89 million bbl/day in August, including its newest member Congo.
  • Libyan output recovered from 670,000 bbl/day in July to 940,000 bbl/day after the country lifted force majeure on its export terminals.
  • Production out of Iraq increased 110,000 bbl/day to 4.68 million bbl/day in August, a record high for the country.
  • Saudi Arabia declined to 10.49 million bbl/day while output from Venezuela dipped to 1.22 million bbl/day. Iran produced 3.6 million bbl/day, the lowest in two years.
  • OPEC's Joint Technical Committee will meet on September 17 to review its previous commitment to increase output by 1 million bbl/day.
DEMAND
BULLISH
  • OPEC's Secretary General says world oil demand will hit 100 million bbl/day later this year, sooner than initial estimates.
SENTIMENT
BULLISH
  • The Brent futures curve returned to backwardation, including near-month contracts.
  • The number of net longs on managed money contracts rose again this week, indicating bullishness among traders.
CURRENCIES & BONDS

This week's notable Canadian economic data:

  • Canada lost 52,000 jobs in August, split 92,000 part-time job losses and 40,400 full-time job gains. Job losses were mostly focused in Ontario, while Alberta and Manitoba posted gains for the month. The national unemployment rate rose from 5.8% to 6.0% in August.

  • Canada's merchandise trade deficit with the world narrowed from $743 million in June to $114 million in July, the narrowest since the surplus of December 2016. Total exports rose 0.8%, mainly on higher crude oil prices. Imports declined 0.4%, due to fewer aircraft imports.

The Bank of Canada left interest rates unchanged this week but says the economy remains "on course" for another rate hike in October. The loonie lost almost 1%, breaking below 76 basis points as NAFTA talks drag on.

This week's notable US economic data:

  • The US trade deficit rose to a five-month high in July, with the Chinese trade gap hitting a record high. The US Commerce Department reported a deficit of US$50.1 billion, of which the deficit with China rose to a record US$36.8 billion.

  • The US economy added 201,000 jobs in August. June and July numbers were revised lower to 208,000 and 147,000, respectively. The national unemployment rate was unchanged at 3.9%.

  • The number of new jobless claims fell to near a 49-year low last week, to a seasonally adjusted 203,000.

  • Average hourly wages rose 0.4% in August, bringing the annual change to 2.9%, the highest since May 2009.

  • The ISM manufacturing index surged 3.2 points in August to 61.3, the highest since May 2004. The ISM non-manufacturing index increased 2.8 points to 58.5, the strongest since January.

Bond yields rose globally, including the US and Canada. Most global currencies declined against the greenback. The Aussie dollar and New Zealand kiwi tumbled over 1% on deteriorating trade relations between the US and China.

OIL MARKETS
USD/BBL
% CHG W/W
52-WK
BRENT
WTI
C5+
CDN LT
WCS
76.83
67.75
61.92
52.18
40.90
50.86
45.96
47.61
43.56
30.41
79.80
74.15
71.40
69.32
56.21

UK-bank Barclays says oil prices could reach US$80 and higher in the short term as US producers exercise capital discipline, while key OPEC producers are at risk of being "failed states." Barclays increased its 2020 Brent forecast from US$55 to US$75 a barrel.

A very ugly week for Canadian oil prices as the heavy and light discounts to WTI widened to US$26.85 and US$15.57 a barrel, respectively. The spread is being blamed on the ramp up of production at Syncrude and the start of a two-month maintenance turnaround at BP's Whiting Refinery in the US Midwest, the largest buyer of Canadian crude.

Henry Hub natural gas prices tumbled almost 5% for the week while gasoline prices declined 1.4%.

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)

OPEC Secretary General Mohammad Barkindo says world oil demand will hit 100 million bbl/day later this year, much sooner than originally forecasted. Barkindo says "stabilizing forces which create conditions conducive to attracting investments" is needed for supply to keep up with rising demand.

The International Energy Agency (IEA) and OPEC are due to release their September oil market reports next week.

According to Baker Hughes, the number of oil rigs operating in the US declined by two, falling to 860 on Friday. Canada lost 18 rigs, bringing the total to 133.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

Sep 6, 2018

US CRUDE OIL STOCKPILES RETURN TO THE LOWS OF FEBRUARY 2015

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

Most global equity markets ended the week lower, blamed on continued trade tensions between the US and China. European markets declined about 3% while emerging markets sank almost 4%.

US and Canadian markets were decidedly defensive this week, with energy, commodities, technology and discretionary stocks leading the declines. Staples and utilities rallied along with global bond yields.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Energy stocks were the worst performers on the TSX this week, declining over 4%. On the S&P 500, the energy sector declined 2.3%.

Declines were broadly based, with producers and services stocks leading on the downside. Small cap producers were particularly hard hit this week, with several names hitting new lows.

CANADIAN ENERGY NEWS

This week's Canadian political news:

  • Prime Minister Trudeau toured Alberta this week, taking the time to meet with Premier Rachel Notley, still fuming from the cancellation of federal permits for the Trans Mountain Expansion project. Notley insists the federal Liberals have a plan to resume construction within "weeks," although Ottawa has yet to commit to any timelines. Trudeau says all options are on the table, including filing an appeal to the Supreme Court. The Liberals have begun more consultations with First Nations communities and extended protection for the Southern resident killer whales, two deficiencies cited by the Federal Court of Appeal in its ruling last week.

  • Also on the agenda later this month is Bill C-69, which would see the creation of a new Impact Assessment Agency for approvals of resource projects. The new process is said to be less energy-focused with a greater emphasis on climate-change accounting, more input from Indigenous peoples and "gender-based analysis" of data. The new plan is being blasted by the energy sector, who worry regulatory reviews will take longer and be more complicated. The Liberals insist the changes are required to restore confidence in the system. Bill C-69 will have its second reading in Parliament later this month.

This week's Canadian energy news:

  • Kinder Morgan (NYSE:KMI) hinted it may be looking at offloading the company's remaining Canadian assets, now that the Trans Mountain pipeline (TMPL) and associated infrastructure has been sold to the federal government. Aside from TMPL, Kinder Morgan Canada (KML) still owns storage terminals in Alberta, the Vancouver Wharves Terminal and the Cochin diluent pipeline. Kinder Morgan spun-off its Canadian assets in the spring of last year in order to fund the Trans Mountain Expansion project. KMI CEO Steve Kean calls the midstream assets "attractive" with no shortage of potential buyers. Former KML CEO Ian Anderson is now an employee of the federal government and head of the Trans Mountain Corporation.

  • Suncor Energy (SU) CEO Steve Williams told investors this week that lack of progress on pipeline construction is "troubling" but not relevant to the company in the short term. Williams says Suncor's current production, including additional volumes from Fort Hills, already has space booked on existing pipeline infrastructure, but warns no expansions will be approved until more pipeline capacity is added.

  • After more than a year of consultations, the McKay Métis Community and Imperial Oil (IMO) signed a long-term mutual benefits agreement this week in the hamlet of Fort McKay, located 60 km north of Fort McMurray. Community President Ron Quintal says his members are "satisfied that Imperial's Kearl and proposed Aspen projects are environmentally sound and will provide significant economic benefit." The First Nations community will provide environmental planning and stewardship, as well as contracting services. Imperial Oil has agreed to invest in the development of the McKay Métis cultural pavilion in Fort McKay, to be used for cultural events and community gatherings.

  • According to Reuters, Cenovus Energy (CVE) has signed an agreement with Canadian National Railway (CNR) to move more crude-by-rail. The deal was inked before the cancellation of the Trans Mountain pipeline expansion. Earlier this year, Cenovus CEO Alex Pourbaix said his company was considering a multi-year commitment to move 50,000 to 60,000 bbl/day of production out of its Christina Lake and Foster Creek operations by rail. Details of the new agreement were not disclosed. According to government sources, crude shipments by rail should increase by 50% this year as more contracts are signed and new locomotives are delivered.

  • In a letter to shareholders, MEG Energy's (MEG) new CEO Derek Evans says his company is "at the threshold of significant transformation." Evans says MEG's Vision 20/20 is a proven, low-risk, high-return plan that should bring production to 113,000 bbl/day by 2020. The CEO hinted at additional brownfield expansions at Christina Lake, which will bring production "well beyond" 113,000 bbl/day. The company has promised to provide more details in the future when finalized. MEG announced the appointment of Chi-Tak Yee as its new COO. Yee previously served as one of the company's Senior VPs, and was instrumental in the development of its Christina Lake SAGD operations.

This week's Canadian investing news:

  • Kinder Morgan Canada (KML) says it expects to return $1.2 billion in capital back to its shareholders, now that it has closed on the sale of its Trans Mountain assets to the federal government. KML shareholders can expect to receive $11.40 per share. The company's board also unanimously approved a reverse stock split, on a one-for-three basis, early in the new year. The company says its annual dividend will revert back to $0.65 per share, pending shareholder approval.

  • Crescent Point Energy (CPG) announced plans to reduce its staff by 17% and divest upstream assets in order to cut its debt load by over $1 billion by the end of next year. The company says the workforce reduction, estimated at 185 positions, will save it over $50 million annually. Crescent Point also named Craig Bryksa as its new CEO.

  • Encana (ECA) CEO Doug Suttles says he expects 2018 full year cash flow to be 14% higher than previous guidance, rising from $14 to $16 per barrel. Suttles also says his company is on track to meet its Q4 production target of between 400,000 to 425,000 boe/day, with daily production out of the Permian already at about 90,000 bbl/day.

  • NuVista Energy (NVA) has closed on its acquisition of various assets in Alberta's Pipestone area, recently purchased from Cenovus Energy (CVE). The company has adjusted it 2018 production guidance to a new range of between 36,000 to 38,000 boe/day.

  • Surge Energy (SGY) has agreed to buy Mount Bastion Oil & Gas for $320 million. The deal adds more than 600 million barrels of light oil to the company's reserves. Surge says operating netbacks should improve by 12%, adding more than $85 million in net operating income next year. The company also says it expects to increase its dividend by 25%.

US ENERGY NEWS

This week's US energy news:

  • Output from the Gulf of Mexico returned to normal this week after Tropical Storm Gord forced the evacuation of several platforms last weekend, taking about 157,000 bbl/day of production offline. Gord made landfall near the Alabama-Mississippi border, steering clear of most refineries and terminals along the Louisiana coast.

  • The US Administration says they will consider waivers for importers of Iranian crude, provided they eventually ween themselves off the forbidden feedstock. Secretary of State Mike Pompeo made the announcement during his visit to India, the second largest buyer of Iranian crude, after China. India warned it will take "a little bit of time" to cut its Iranian imports to zero. Pompeo says sanctions will be imposed on all countries doing business with Iran, adding he's more than willing to help any country replace Iranian barrels with American feedstock. Sanctions on Iran's petroleum sector take effect on November 4.

  • Venture Global LNG has entered into a 20-year agreement with Spanish energy firm Repsol (REPYY) for the supply of 1 million t/year of LNG from the Calcasieu Pass LNG export terminal, currently under development in Louisiana. Venture Global expects Calcasieu Pass to begin commercial operations in 2022.

This week's US midstream news:

  • Kinder Morgan (KMI) and EagleClaw Midstream announced a positive FID to proceed on the Permian Highway Pipeline Project. Committed shippers on the line include EagleClaw, Apache (APA) and ExxonMobil (XOM) subsidiary XTO Energy. The line is expected to commence operations by the end of 2020, with the capacity to transport up to 2 Bcf/day of natural gas out of the Permian Basin. EagleClaw is the largest privately held midstream operator in the Permian’s Delaware Basin, owned by Blackstone Energy Partners.

  • Magellan Midstream Partners (MMP) says it expects to spend about US$2 billion to build its proposed Permian Gulf Coast crude oil pipeline, which runs 600 miles from the Permian to the Gulf Coast. Costs will be finalized once shippers confirm committed volumes, with another open season planned for later this month. MMP also is considering the construction of new products and crude oil midstream assets in Texas, including new pipelines, storage tanks and export facilities. The Permian Gulf Coast pipeline is jointly owned with Energy Transfer Partners (ETP), MPLX (MPLX) and Delek US Holdings (DK).

  • Marathon Oil (MRO) has signed a new long-term natural gas gathering and processing agreement with privately-held Lucid Energy Group. Under terms of the agreement, Lucid will provide midstream services to most of Marathon's Permian production in New Mexico.

  • Enterprise Products Partners (EPD) says it expects approvals for its Texas offshore oil export terminal to take about two years. The terminal would be located about 80 miles offshore Galveston with the capacity to load VLCCs at rates of about 2 million bbl/day.

  • Southwestern Energy (SWN) has agreed to sell its Fayetteville Shale E&P and related midstream assets for US$1.87 billion in cash to privately-held Flywheel Energy. Flywheel will also assume US$438 million in future contractual liabilities.

This week's other US investing news:

  • Deepwater driller Transocean (RIG) has agreed to buy Ocean Rig (ORIG) for US$2.7 billion in cash and stock, including the company's debt. Once the deal closes, RIG and ORIG shareholders will own 79% and 21% of the combined company, respectively.

  • Oilfield services provider Halliburton (HAL) warned its third quarter earnings will be negatively impacted from "moderating" activity in the Permian Basin. CEO Jeff Miller blames the slowdown on pipeline bottlenecks, a tight labour market and inflation, which is reducing demand for the company's drilling and hydraulic fracturing services. Miller also says slow ramp-up of new contracts in the Middle East will also hit the company's bottom line.

  • Cheniere Energy Partners (CQP) announced plans for a US$1.1 billion debt offering due in 2026. The company says net proceeds will be used to repay outstanding credit facilities due in 2020.

GLOBAL ENERGY NEWS

Around the world this week:

  • Exxon Mobil (XOM) announced a preliminary deal to build a petrochemical complex in China's Guangdong province. Plans include a 1.2 million t/year ethylene plant, two polyethylene production lines and two polypropylene lines, with feedstock to be supplied by a new LNG terminal. The facility, to be located in the city of Huizhou, is expected to start in 2023, pending a positive final investment decision. Estimated capital costs were not disclosed although Chinese media is reporting that Exxon's total investment in the southern province to be about US$10 billion.

  • Exxon also warned that continued problems in Nigeria may have the potential to "significantly impact revenues." Disgruntled former employees have set-up blockades, denying access to its production facilities and intimidating employees. Exxon produces about 550,000 bbl/day in the country, representing about one-third of Nigeria's total oil output.

  • Uganda's national oil company has signed an MOU with China's CNOOC (CEO) for joint exploration and development of the country's Albertine rift basin. CNOOC already operates in Uganda with several oil fields owned jointly with Total (TOT) and Tullow Oil (LSE:TLW). Reserves in the basin are estimated at 6.5 billion barrels, with first oil expected in 2021.

  • Montreal-based SNC-Lavalin (TSX:SNC) was awarded a project support services contract with LUKOIL for the West Qurna phase 2 oil field in Iraq. The scope includes engineering and design activities, project support services and training of local Iraqi professionals. The work will be executed out of Iraq and the UAE. West Qurna Phase 2 is one of the world's largest oil fields, location 65 km northwest of Basra. Financial terms of the deal were not disclosed.

MARKET TECHNICALS
BULLISH INDICATORS
TSX
S&P 500
TOP 5
  • PrairieSky (PSK +2.9%)
  • Parkland Fuel (PKI +2.5%)
  • Husky Energy (HSE +1.7%)
  • Parex Resources (PXT +0.9%)
  • Enbridge (ENB +0.8%)
  • Exxon Mobil (XOM +2.1%)
  • Kinder Morgan (KMI +0.7%)
  • Andeavor (ANDV +0.3%)
  • Marathon Petroleum (MPC +0.3%)
  • 12-MO
    HIGHS
  • Parkland Fuel (PKI +2.5%)
  • Marathon Petroleum (MPC +0.3%)
  • Andeavor (ANDV +0.3%)
  • 10-YR
    HIGHS
  • None
  • Marathon Petroleum (MPC +0.3%)
  • Andeavor (ANDV +0.3%)
  • GOLDEN
    CROSSES
  • Enerflex (EFX -1%)
  • Secure Energy Services (SES +0.5%)
  • None
  • BEARISH INDICATORS
    TSX
    S&P 500
    BOTTOM
    5
  • Advantage Oil & Gas (AAV -13.4%)
  • Kelt Exploration (KEL -12%)
  • Crescent Point (CPG -10.5%)
  • Baytex Energy (BTE -9.7%)
  • MEG Energy (MEG -9.5%)
  • Range Resources (RRC -10.8%)
  • Transocean (RIG -10.4%)
  • Chesapeake (CHK -9%)
  • EQT Corp (EQT -8.7%)
  • Cabot Oil & Gas (COG -8.4%)
  • 12-MO
    LOWS
  • PrairieSky (PSK +2.9%)
  • Advantage Oil & Gas (AAV -13.4%)
  • Crescent Point (CPG -10.5%)
  • Freehold Royalties (FRU -3%)
  • Paramount Resources (POU -7.7%)
  • Trican Well (TCW -5.2%)
  • Schlumberger (SLB -5.5%)
  • Halliburton (HAL -7.7%)
  • Cabot Oil & Gas (COG -8.4%)
  • 10-YR
    LOWS
  • Crescent Point (CPG -10.5%)
  • None
  • DEATH
    CROSSES
  • Nuvista Energy (NVA -1.2%)
  • Pioneer Natural Res (PXD -7.2%)
  • ANALYST RATINGS

    UPGRADES

    • BP (NYSE:BP): Upgraded from Equal Weight to Overweight at Morgan Stanley.

    • Centennial Resources Development (NASDAQ:CDEV): Upgraded from Hold to Buy at SunTrust Banks.

    • Cabot Oil & Gas (NYSE:COG): Upgraded from In-Line to Outperform at Evercore ISI.

    • CVR Energy (NYSE:CVI): Upgraded from Neutral to Buy at Goldman Sachs.

    • HighPoint Resources (NYSE:HPR): Upgraded from Neutral to Buy at Seaport Global Securities.

    • Whiting Petroleum (NYSE:WLL): Upgraded from Hold to Buy at R. F. Lafferty.

     

     

     

     

     

     

    DOWNGRADES

    • Cenovus Energy (CVE): Downgraded from Neutral to Sell at Goldman Sachs.

    • Cimarex Energy (NYSE:XEC): Downgraded from Buy to Hold at SunTrust Banks.

    • CVR Refining (NYSE:CVRR): Downgraded from Buy to Neutral at Goldman Sachs.

    • ConocoPhillips (NYSE:COP): Downgraded from Buy to Neutral at BofA.

    • Chevron (NYSE:CVX): Downgraded from Buy to Neutral at BofA.

    • Enerflex (EFX): Downgraded from Action List Buy to Buy at TD Securities.

    • Energen (NYSE:EGN): Downgraded from Buy to Neutral at Seaport Global Securities.

    • Ensco (NYSE:ESV): Downgraded from Hold to Sell at DNB Markets.

    • Genesis Energy, L.P. (NYSE:GEL): Downgraded from Outperform to Neutral at Robert W. Baird.

    • Golar LNG Partners (NASDAQ:GMLP): Downgraded from Hold to Sell at DNB Markets.

    • HollyFrontier (NYSE:HFC): Downgraded from Overweight to Hold at US Capital Advisors.

    • National Oilwell Varco (NYSE:NOV): Downgraded from Buy to Hold at Edward Jones.

    • Nextdecade (NASDAQ:NEXT): Downgraded from Buy to Neutral at BofA.

    • PBF Energy (NYSE:PBF): Downgraded from Sell to Neutral at Goldman Sachs.

    • Precision Drilling (PD): Downgraded from Action List Buy to Buy at TD Securities.

    • Rowan Companies (NYSE:RDC): Downgraded from Neutral to Buy at Citigroup.

    • ShawCor (SCL): Downgraded from Buy to Hold at TD Securities.

    • Southwestern Energy (NYSE:SWN): Downgraded from Outperform to Market Perform at BMO.

    • Valero Energy Partners (NYSE:VLP): Downgraded from Overweight to Hold at US Capital Advisors.

     

     

     

     

     

     

    NEXT WEEK'S EVENTS

    Monday:

    • PM Trudeau speaks at Women in the World summit in Toronto, ON

    Tuesday

    Wednesday:

    Thursday:

    Friday:

    • Baker Hughes Rig Count released @ 1:00pm ET

    • October contract expiry for C5+, WCS and Canadian Light

    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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