Equity markets post third week of gains, taking energy stocks along for the ride
This week in energy commodities:
- Oil prices continued to show strength this week, rising for the second week in a row.
- Canadian benchmarks also powered higher from the lows of mid-November, as differentials to WTI continue to narrow. The WCS discount declined by US$2.50, ending Friday below US$10/bbl for the first time since August 2017. The discount on Canadian Light and Edmonton Condensate (C5+) also narrowed to US$3 and $2, respectively.
- Gasoline prices rose almost 4% for the week, while heating oil gained 6%.
- In natural gas markets, AECO gas rose about 5% for the week, while Henry Hub gained 2%.
This week's 2019 oil price forecasts:
- AltaCorp slashed their 2019 WTI forecast from US$72.50 a barrel to just under US$51, falling to US$60/bbl in 2020. The WCS discount to WTI forecast has also been cut from over US$26 to about US$19 this year, edging up to US$22 in 2020. The forecasted discount on Edmonton Par (or Canadian Light) has also been cut from US$12 to US$9/bbl this year, rising to US$10/bbl in 2020.
- Scotiabank says it expects WTI to return to the high US$50s this year, and US$65/bbl in the following years.
- Goldman Sachs cut its Brent forecast from US$70 to US$62.50 in 2019, while WTI is expected to average US$55.50, down from a previous forecast of US$64.50.
- Morgan Stanley cut its 2019 oil price forecasts by more than 10%, with Brent and WTI now expected to average US$61 and US$54, respectively.
- A number of analysts surveyed by OANDA were also found to have cut their 2019 forecasts by over 10%, citing weakening global growth and rising US output. Consensus for Brent has fallen by about US$8 to US$61 this year, while WTI forecasts have been cut by US$6 to US$54.
This week's Canadian economic data:
- Canada's trade deficit widened from $851 million in October to $2.1 billion in November. Exports declined 2.9%, mainly due to oil exports, while imports decreased 0.5%. Exports of energy products fell 9.2% to $8.4 billion.
- The Bank of Canada kept interest rates unchanged at 1.75% this week. The bank cut its 2019 growth forecast from 2.1% to 1.7% due to recent weakness in the energy sector. Governor Poloz says he remains committed to getting interest rates back to normal in the long term.
This week's US economic data:
- US consumer prices (CPI) dipped 0.1% in December, the first drop in nine months due to falling gasoline prices. Ex-food and energy, CPI rose 0.2%, bringing the annualized core CPI increase to 2.2%.
- The number of Americans filing for unemployment declined more than expected in December. The US economy added 312,000 new jobs during the month, the best showing in almost a year.
- The unemployment rate declined to 3.9%. However, that number is expected to rise sharply due to the ongoing shutdown of the federal government.
Higher oil prices and strong employment data sent US bond yields higher this week, on both short and longer duration bonds. After going negative last week, rates on the Japanese 10-year returned above zero this week, ending Friday at 0.01%. Canadian 10-year bond yields also moved higher by 4 basis points, ending Friday at 1.96%.
Minutes from December's FOMC meeting showed hesitation among policymakers to raise rates aggressively in 2019. The news sent the dollar lower by 0.5% for the week. Except for the Japanese yen, most other currencies, including the Euro, pound sterling and Canadian dollar, rose about 1%.
Global equity markets got a nice boost this week after US President Donald Trump said trade talks with China are progressing "very well." Trump pulled out of the World Economic Forum in Davos later this month due to the on-going government shutdown, but trade negotiations between the two countries are ongoing.
Last year's worst hit indices were the most improved this week, including the Russell 2000 Small Cap Index (+4.8%) and the Dow Transports (+4.3%). Hong Kong and Hang Seng markets rose about 4%, as did Japan's Nikkei Average.
The energy sector rose 3.4% on both sides of the border, posting three consecutive weeks of gains. The beaten-down energy services subsector was the most improved for the week. Most energy components ended the week higher.
|Suncor Energy||SU||40.35||▲2.7||35.53||55.47||D W|
|Imperial Oil||IMO||35.30||▲0.8||33.43||44.91||D W|
|Husky Energy||HSE||14.94||▲0.9||13.33||22.99||D W|
|Pembina Pipeline||PPL||43.74||▲3.6||37.60||47.84||D W|
|Inter Pipeline||IPL||20.90||▲3.6||18.60||25.98||D W|
|Gibson Energy||GEI||19.91||▲1.1||15.68||23.32||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||36.05||▲4.1||30.11||49.08||D W|
|Cenovus Energy||CVE||10.75||▲4.4||8.74||14.84||D W|
|Vermilion Energy||VET||31.93||▲4.0||26.67||50.46||D W|
|Pason Systems||PSI||19.88||▲7.8||16.05||24.57||D W|
|Mullen Group||MTL||12.43||▲0.6||11.39||16.93||D W|
|Secure Energy||SES||7.95||▲12.8||6.25||9.82||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||35.10||▲1.2||26.76||47.45||D W|
|Exxon Mobil||XOM||71.72||▲0.8||64.65||89.30||D W|
|Kinder Morgan||KMI||17.11||▲5.4||14.62||19.83||D W|
|Williams Co||WMB||25.04||▲6.3||20.36||33.67||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||96.87||▲3.1||82.04||133.53||D W|
|Occidental Petro||OXY||66.22||▲4.8||56.83||87.67||D W|
|Anadarko Petro||APC||47.65||▲3.0||40.40||76.70||D W|
|Pioneer Natural Res||PXD||142.24||▲2.1||119.08||213.40||D W|
|Baker Hughes||BHGE||23.10||▲5.2||20.09||37.76||D W|
|Ntl-Oilwell Varco||NOV||29.11||▲8.9||24.27||49.08||D W|
|Marathon Petro||MPC||64.87||▲5.2||54.29||88.45||D W|
|Phillips 66||PSX||92.69||▲2.0||78.44||123.97||D W|
|Valero Energy||VLO||78.47||▲1.9||68.81||126.98||D W|
- TD Securities Energy Conference (London, UK)
- EIA Short Term Energy Outlook
- API Weekly Statistical Bulletin
- Peters & Co. 2019 Winter Energy Conference (Lake Louise, AB)
- Husky Energy's deadline for MEG shareholders to tender their shares
- EIA Weekly Petroleum Status Report
- Q4/2018 earnings: Kinder Morgan, Kinder Morgan Canada
- February contract expiry for WCS, Cdn Light, Edmonton Condensate and Synthetic Crude.
- EIA Weekly Natural Gas Storage Report
- StatsCan Consumer Price Index (Dec 2018 data)
- IEA Monthly Oil Market Report
- Baker Hughes Weekly Rig Counts
- Q4/2018 earnings: Schlumberger