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

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

This week's Energy Market Summary for the week ending Friday January 18, 2019:
  • Oil prices post third week of solid gains
  • Energy stocks rally for the fourth week in a row
  • Output from Russia and the US hit new record highs
  • US oil rig counts take a big tumble ...
    ... while Canadian rig counts continue to recover
  • Goldman bullish on Canadian oil producers.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • China has proposed closing its trade gap with the US through the purchase of billions in US crude exports over the next 6 years, in exchange for dropping all US tariffs on Chinese imports. So far, the Trump Administration has denied striking any such deal.
USD INDEX
NEUTRAL
  • The US dollar posted its first weekly gain in 5-weeks, bouncing off its 200-day moving average, but still well below the highs of last fall.
SUPPLY
NEUTRAL
  • In its January report, OPEC cut its non-OPEC supply growth forecast from 2.16 to 2.10 million bbl/day, due to Alberta's mandated production cuts. Supply out of OPEC is expected to grow by 110,000 bbl/day this year.
  • OPEC estimates its members produced 31.6 million bbl/day in December, down 751,000 bbl/day from the previous month. The cartel says it needs to produce 30.8 million bbl/day this year to keep markets balanced, excluding Qatar.
  • According to the International Energy Agency (IEA), world oil supply fell by 950,000 bbl/day in December, falling to 100.6 million bbl/day. OPEC supply declined an estimated 590,000 bbl/day while Russian oil output hit a record 11.5 million bbl/day.
  • The Energy Information Administration (EIA) estimates total US oil output touched a record 11.9 million bbl/day last week. However, the number of oil rigs in service this week declined by 21, falling to the lows of last May.
DEMAND
NEUTRAL
  • In their respective January reports, both OPEC and the IEA left their 2019 global oil demand growth forecasts unchanged at 1.5 and 1.4 million bbl/day, respectively.
SENTIMENT
BULLISH
  • Price action on Brent and WTI continues to be bullish, as both benchmarks posted their third consecutive week of gains and remain firmly above key support levels.
OIL MARKETS
STREAM CLOSE %CHG L 52WK H
BRENT$62.70▲3.750.47
 
86.29
WTI$53.80▲4.342.53
 
76.41
CDN LT$48.15▼0.720.83
 
69.32
C5+$50.05▲1.037.04
 
71.40
WCS$42.60▲2.012.59
 
56.21

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.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

JAN 16, 2019

US CRUDE PRODUCTION SURGES TO NEW RECORD HIGH

 
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:

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

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%.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

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.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Suncor EnergySU42.49▲5.335.53
 
55.47D   W
Imperial OilIMO37.21▲5.433.43
 
44.91D   W
Husky EnergyHSE16.70▲11.813.33
 
22.99D   W
MIDSTREAM
EnbridgeENB47.91▲4.437.36
 
49.68D   W
TransCanadaTRP55.29▲2.747.90
 
60.22D   W
Pembina PipelinePPL45.33▲3.637.60
 
47.84D   W
Inter PipelineIPL21.58▲3.318.60
 
25.88D   W
Keyera KEY28.210.024.05
 
38.91D   W
Gibson EnergyGEI20.00▲0.515.68
 
23.32D   W
LARGE CAP E&P
Cdn Natural ResCNQ36.51▲1.330.11
 
49.08D   W
Cenovus EnergyCVE10.79▲0.48.74
 
14.84D   W
EncanaECA9.34▲4.26.90
 
18.54D   W
TourmalineTOU19.18▲5.515.84
 
26.19D   W
Vermilion EnergyVET32.67▲2.326.67
 
50.46D   W
SERVICES
Pason SystemsPSI21.18▲6.516.05
 
24.57D   W
EnerflexEFX17.39▲0.113.55
 
18.72D   W
Mullen Group MTL12.82▲3.111.39
 
16.93D   W
ShawcorSCL18.90▲1.115.11
 
29.50D   W
Secure EnergySES8.06▲1.46.25
 
9.82D   W
REFINING & MARKETING
Parkland FuelPKI37.05▲5.627.36
 
47.45D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Exxon MobilXOM72.99▲1.864.65
 
89.30D   W
ChevronCVX114.37▲1.6100.22
 
132.67D   W
MIDSTREAM
Kinder MorganKMI18.01▲5.314.62
 
19.71D   W
Williams CoWMB26.40▲5.420.36
 
33.67D   W
ONEOKOKE63.19▲5.750.26
 
71.99D   W
LARGE CAP E&P
ConocoPhillipsCOP67.90▲2.350.18
 
80.24D   W
EOG ResourcesEOG101.05▲4.382.04
 
133.53D   W
Occidental PetroOXY67.03▲1.256.83
 
87.67D   W
Anadarko PetroAPC48.67▲2.140.40
 
76.70D   W
Pioneer Natural ResPXD144.90▲1.9119.08
 
213.40D   W
SERVICES
SchlumbergerSLB44.73▲7.234.99
 
80.35D   W
HalliburtonHAL32.25▲5.024.70
 
57.86D   W
Baker HughesBHGE24.12▲4.420.09
 
37.76D   W
Ntl-Oilwell VarcoNOV30.45▲4.624.27
 
49.08D   W
TechnipFMCFTI24.08▲6.518.20
 
34.97D   W
REFINERS
Marathon PetroMPC66.09▲1.954.29
 
88.45D   W
Phillips 66PSX95.30▲2.878.44
 
123.97D   W
Valero EnergyVLO82.59▲5.368.81
 
126.98D   W
HollyFrontierHFC55.97▲4.642.42
 
83.28D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
Royal Dutch ShellRDS.A61.07▲0.955.04
 
73.86D   W
TotalTOT54.56▲1.249.70
 
65.69D   W
BPBP40.76▲1.336.15
 
47.83D   W
EniE33.44▲2.329.75
 
40.15D   W
EquinorEQNR22.76▲0.719.95
 
28.93D   W
NEXT WEEK'S EVENTS

Monday:

  • US markets closed for Martin Luther King Jr Day

Tuesday:

  • 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

Wednesday:

  • 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

Thursday:

  • StatsCan Employment Insurance (Nov 2018 data)
  • EIA Weekly Petroleum Status Report (holiday schedule)
  • EIA Weekly Natural Gas Storage Report

Friday:

  • Baker Hughes Weekly Rig Counts
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
  • Energy sector posts first weekly decline since late December

    Energy sector posts first weekly decline since late December

    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