Equity markets post third week of gains, taking energy stocks along for the ride

Equity markets post third week of gains, taking energy stocks along for the ride

This week's Energy Market Summary for the week ending Friday January 11, 2019:
  • Oil prices continue January bull run
  • WCS discount drops below US$10 a barrel
  • Canadian oil rig counts bounce back to life
  • Bank of Canada downgrades 2019 GDP growth
  • Analysts scramble to cut 2019 oil price forecasts.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • According to President Trump, trade talks with China are going "very well," shifting traders back into "risk-on" mode this week.
USD INDEX
NEUTRAL
  • The US dollar declined for the fourth week a row, but still remains above the key support level of 95.
SUPPLY
NEUTRAL
  • Saudi Arabia is planning to cut crude exports to 7.1 million bbl/day by the end of January, in hopes of lifting oil prices above US$80 a barrel. The kingdom is currently producing about 10.2 million bbl/day, down from 10.3 million earlier this year and 11.0 million bbl/day last November.
  • Iraq's state-owned Basra Oil Company announced plans to raise output from its Majnoon oilfield from the current 240,000 bbl/day to 290,000 bbl/day by the end of this year, and 450,000 bbl/day by the end of 2021. The country has approved US$7 billion in investments to develop five major projects, including Majnoon.
  • Norway cut its 2019 oil output forecast to 1.42 million bbl/day, the lowest in 30 years, due to "more complex" new developments.
  • After a major slump over the Christmas holidays, Canada added 83 oil rigs this week, bringing the total to 103. Rig counts in the US were unchanged. Total US output was also unchanged last week at 11.7 million bbl/day.
DEMAND
BEARISH
SENTIMENT
BULLISH
  • Oil prices showed strong upward momentum once again this week, with WTI and Brent breaking above key resistance levels of US$50 and US$60, respectively.
OIL MARKETS
STREAM CLOSE %CHG L 52WK H
BRENT$60.48▲6.050.47
 
86.29
WTI$51.59▲7.642.53
 
76.41
CDN LT$48.51▲10.220.83
 
69.32
C5+$49.53▲8.737.04
 
71.40
WCS$41.75▲17.212.59
 
56.21

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.
 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

JAN 9, 2019

US IMPORTS OF CDN CRUDE HITS A RECORD HIGH IN THE FIRST WEEK OF 2019

 
CRUDE OIL FUTURES CURVES
BRENT
WTI
█ OIL PRICE (USD/BBL)   █ MONTH 5 VS NEAR MONTH
MANAGED MONEY: FUTURES & OPTIONS
BRENT
WTI
█ OIL PRICE (USD/BBL)   █ LONG   █ SHORT █ NET LONG (1000 BBL CONTRACTS)
EDITOR'S NOTE: WTI MANAGED MONEY CONTRACT DATA FROM THE CFTC HAS NOT BEEN UPDATED SINCE DEC 18 DUE TO THE SHUTDOWN OF THE US FEDERAL GOVERNMENT.
CURRENCIES & BONDS

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%.

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

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.

In Toronto, the TSX rose 3.6%. Except for precious metals, most other sectors ended the week in the positive. The S&P 500 rose 2.5%, led higher by the more offensive sectors.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

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.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Suncor EnergySU40.35▲2.735.53
 
55.47D   W
Imperial OilIMO35.30▲0.833.43
 
44.91D   W
Husky EnergyHSE14.94▲0.913.33
 
22.99D   W
MIDSTREAM
EnbridgeENB45.90▲5.037.36
 
49.99D   W
TransCanadaTRP53.86▲4.547.90
 
60.25D   W
Pembina PipelinePPL43.74▲3.637.60
 
47.84D   W
Inter PipelineIPL20.90▲3.618.60
 
25.98D   W
Keyera KEY28.21▲4.324.05
 
38.91D   W
Gibson EnergyGEI19.91▲1.115.68
 
23.32D   W
LARGE CAP E&P
Cdn Natural ResCNQ36.05▲4.130.11
 
49.08D   W
Cenovus EnergyCVE10.75▲4.48.74
 
14.84D   W
EncanaECA8.96▲7.66.90
 
18.54D   W
TourmalineTOU18.18▲2.815.84
 
26.19D   W
Vermilion EnergyVET31.93▲4.026.67
 
50.46D   W
SERVICES
Pason SystemsPSI19.88▲7.816.05
 
24.57D   W
EnerflexEFX17.38▲8.513.55
 
18.72D   W
Mullen Group MTL12.43▲0.611.39
 
16.93D   W
ShawcorSCL18.70▲3.615.11
 
29.50D   W
Secure EnergySES7.95▲12.86.25
 
9.82D   W
REFINING & MARKETING
Parkland FuelPKI35.10▲1.226.76
 
47.45D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Exxon MobilXOM71.72▲0.864.65
 
89.30D   W
ChevronCVX112.54▲1.6100.22
 
133.88D   W
MIDSTREAM
Kinder MorganKMI17.11▲5.414.62
 
19.83D   W
Williams CoWMB25.04▲6.320.36
 
33.67D   W
ONEOKOKE59.80▲5.650.26
 
71.99D   W
LARGE CAP E&P
ConocoPhillipsCOP66.39▲4.150.18
 
80.24D   W
EOG ResourcesEOG96.87▲3.182.04
 
133.53D   W
Occidental PetroOXY66.22▲4.856.83
 
87.67D   W
Anadarko PetroAPC47.65▲3.040.40
 
76.70D   W
Pioneer Natural ResPXD142.24▲2.1119.08
 
213.40D   W
SERVICES
SchlumbergerSLB41.74▲6.834.99
 
80.35D   W
HalliburtonHAL30.70▲8.024.70
 
57.86D   W
Baker HughesBHGE23.10▲5.220.09
 
37.76D   W
Ntl-Oilwell VarcoNOV29.11▲8.924.27
 
49.08D   W
TechnipFMCFTI22.60▲8.218.20
 
35.00D   W
REFINERS
Marathon PetroMPC64.87▲5.254.29
 
88.45D   W
Phillips 66PSX92.69▲2.078.44
 
123.97D   W
Valero EnergyVLO78.47▲1.968.81
 
126.98D   W
HollyFrontierHFC53.52▲3.542.42
 
83.28D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
Royal Dutch ShellRDS.A60.54▼0.055.04
 
73.86D   W
TotalTOT53.89▼-1.049.70
 
65.69D   W
BPBP40.24▲0.536.15
 
47.83D   W
EniE32.70▼-0.429.75
 
40.15D   W
EquinorEQNR22.61▲1.419.95
 
28.93D   W
NEXT WEEK'S EVENTS

Monday:

  • TD Securities Energy Conference (London, UK)

Tuesday:

  • EIA Short Term Energy Outlook
  • API Weekly Statistical Bulletin

Wednesday:

  • 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.

Thursday:

  • EIA Weekly Natural Gas Storage Report

Friday:

  • StatsCan Consumer Price Index (Dec 2018 data)
  • IEA Monthly Oil Market Report
  • Baker Hughes Weekly Rig Counts
  • Q4/2018 earnings: Schlumberger
LATEST ENERGY NEWS
UPDATED: EVERY WEEKEND
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 (DIVIDEND ADJUSTED)
  • NOTES:
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • C5+ = EDMONTON CONDENSATE
  • US BONDS = TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • CA BONDS = XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SECTOR & SUBSECTOR PERFORMANCES WEIGHTED BY MARKET CAP
  • TSX SHARE PRICES IN CAD; S&P 500 PRICES IN USD
  • ADR: AMERICAN DEPOSITORY RECEIPTS LISTED ON NYSE IN USD
  • SHARE PRICE CHANGES (INCL. NEW HIGHS & LOWS) EXCLUDE DIVIDENDS
  • Oil prices power higher, despite record output from the US and Russia

    Oil prices power higher, despite record output from the US and Russia

    Energy stocks lead markets higher on the first trading week of 2019

    Energy stocks lead markets higher on the first trading week of 2019