Oil prices power higher, despite record output from the US and Russia
Saudi Arabia's energy minister says he remains confident OPEC and Russia will cut 2019 output as previously telegraphed, although admits Russia has been slow to respond. OPEC+ have agreed to take 1.2 million bbl/day of crude off oil markets this year, with 900,000 bbl/day to come from Saudi Arabia. The next OPEC meeting is scheduled for April.
The US Energy Information Administration (EIA) is sticking to its 2019 WTI forecast of US$54.19 per barrel, rising to US$60.76 in 2020. The agency lowered its Brent forecast by about 1%, now estimated at US$60.52 in 2019, rising to $64.76 in 2020.
According to the EIA, changes to sulphur limits on maritime shipping fuels will cause a small increase in oil prices, diesel margins and differentials for heavy sour crude. Starting January 2020, the sulphur content in marine fuels will be limited to 0.5% on open seas and 0.1% in Emission Control Areas, such as North American ports.
US natural gas prices continue to be very volatile, gaining over 12% for the week. Gasoline prices increased almost 4% while heating oil posted a 1.5% gain.
This week's Canadian economic data:
- After rising 1.7% in November, Canada's Consumer Price Index (CPI) gained 2.0% in December, despite a 3.7% decline in energy prices.
- Excluding gasoline, CPI is now up 2.5% on an annualized basis.
- GDP of Canada's natural resources sector rose 1.0% in the third quarter of last year, down from a 1.4% increase in Q2. Mining activity expanded 4.1% while the energy subsector grew 0.3%, on higher refining activity. Crude oil extraction contracted 1.2% while energy services also dropped 2.5%.
- Foreigners purchased $9.5 billion worth of Canadian securities in November, up from $4.0 billion in the previous month. Canadian investors reduced their holdings of foreign securities by $4.1 billion.
This week's US economic data:
- Industrial production expanded for the seventh consecutive month in row, rising 0.3% in December, thanks to strong manufacturing output.
- Industrial capacity utilization rose to almost 79%, the highest since January 2014.
- The producer price index fell 0.2% m/m in December, due to a 5.4% drop in energy prices.
- The import price index also fell 1% m/m in December, due to a 12% drop in petroleum product prices.
- The federal government shutdown hit its fourth week, the longest on record with no end-date in sight. So far the shutdown in expected to dent first quarter GDP by as much as 0.5%.
This week in bond markets:
- Outside of Japan, global bond yields mostly moved higher this week, including a major jump in German and UK yields.
- The US 10-year rose 8 basis points, ending Friday at 2.79%.
- The Canadian 10-year closed the week at 2.03%, also up 8 basis points.
This week in currency markets:
- The US dollar gained 0.8%, its first weekly gain in 5-weeks.
- The pound sterling has so far been relatively unscathed despite ongoing Brexit turmoil, ending Friday up 0.3%.
- The yen retreated 1.2%, as money rotates back into riskier asset classes.
- The Euro declined 0.8%.
- After two weeks of strong gains, the loonie was roughly unchanged this week.
North American equity markets continue to rally from the lows of late December, with the S&P 500 rising almost 3% w/w and the TSX gaining 2.4%. Markets remain offensive, with the Dow Transports leading to the upside (+4%) and Dow Utilities posting a 1% loss for the week.
European markets also rose about 2% w/w, while Chinese markets gained just over 1.5%.
The energy sectors posted solids gains on both sides of the border, rising 2.6% on the TSX and 2.9% on the SPX. This is the fourth consecutive week of gains for both sectors, rising in line with broader equity markets.
Almost every large-cap energy component ended the week higher. US energy services stocks were the best performers, on a decent Q4/2018 earnings release from Schlumberger. The Canadian integrated subsector also surged over 6% due to a 12% w/w gain in Husky Energy stock.
Goldman Sachs says the future looks bright for Canada's oil producers, noting that pipeline export constraints already baked in to current share prices. The investment firm sees an average return of 16%, assuming a WCS differential of US$20 through 2022. Goldman's top picks are Canadian Natural Resources, Suncor Energy and Imperial Oil.
|Suncor Energy||SU||42.49||▲5.3||35.53||55.47||D W|
|Imperial Oil||IMO||37.21||▲5.4||33.43||44.91||D W|
|Husky Energy||HSE||16.70||▲11.8||13.33||22.99||D W|
|Pembina Pipeline||PPL||45.33||▲3.6||37.60||47.84||D W|
|Inter Pipeline||IPL||21.58||▲3.3||18.60||25.88||D W|
|Gibson Energy||GEI||20.00||▲0.5||15.68||23.32||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||36.51||▲1.3||30.11||49.08||D W|
|Cenovus Energy||CVE||10.79||▲0.4||8.74||14.84||D W|
|Vermilion Energy||VET||32.67||▲2.3||26.67||50.46||D W|
|Pason Systems||PSI||21.18||▲6.5||16.05||24.57||D W|
|Mullen Group||MTL||12.82||▲3.1||11.39||16.93||D W|
|Secure Energy||SES||8.06||▲1.4||6.25||9.82||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||37.05||▲5.6||27.36||47.45||D W|
|Exxon Mobil||XOM||72.99||▲1.8||64.65||89.30||D W|
|Kinder Morgan||KMI||18.01||▲5.3||14.62||19.71||D W|
|Williams Co||WMB||26.40||▲5.4||20.36||33.67||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||101.05||▲4.3||82.04||133.53||D W|
|Occidental Petro||OXY||67.03||▲1.2||56.83||87.67||D W|
|Anadarko Petro||APC||48.67||▲2.1||40.40||76.70||D W|
|Pioneer Natural Res||PXD||144.90||▲1.9||119.08||213.40||D W|
|Baker Hughes||BHGE||24.12||▲4.4||20.09||37.76||D W|
|Ntl-Oilwell Varco||NOV||30.45||▲4.6||24.27||49.08||D W|
|Marathon Petro||MPC||66.09||▲1.9||54.29||88.45||D W|
|Phillips 66||PSX||95.30||▲2.8||78.44||123.97||D W|
|Valero Energy||VLO||82.59||▲5.3||68.81||126.98||D W|
- US markets closed for Martin Luther King Jr Day
- StatsCan Wholesale Trade (Nov 2018 data)
- Public hearings commence into Syncrude's Mildred Lake Extension
- 2018 World Economic Forum kicks-off in Davos, Switzerland
- Expiration of WTI February contract
- Q4/2018 earnings: Halliburton
- StatsCan Retail Trade (Nov 2018 data)
- Kinder Morgan and Kinder Morgan Canada host 2019 Investor Day in Houston, TX
- API Weekly Statistical Bulletin (holiday schedule)
- Q4/2018 earnings: CP Rail
- StatsCan Employment Insurance (Nov 2018 data)
- EIA Weekly Petroleum Status Report (holiday schedule)
- EIA Weekly Natural Gas Storage Report
- Baker Hughes Weekly Rig Counts