Energy sector posts first weekly decline since late December

Energy sector posts first weekly decline since late December

This week's Energy Market Summary for the week ending Friday January 25, 2019:
  • Trump threatens to sanction Venezuelan heavy crude ...
    ... sending Canadian heavy differential lower
  • US crude output likely to flatline at 14 Mbbl/day by 2027
  • Chinese economic growth sinks to 28-year low
  • IMF waives yellow flag as global economies weaken
  • Energy sector drags Canadian and US equity markets lower
  • Goldman Sachs remains bullish on oil prices ...
    ... and midstream stocks.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • The Trump Administration has acknowledged Juan Guaido as interim president of Venezuela, prompting a backlash from current President Nicolas Maduro. The US has threatened to sanction Venezuelan crude exports, which would be particularly disruptive to Gulf Coast refineries.
  • The move is being opposed by Russia, who accuse the Americans of inciting a coup. The US imports about 400,000 bbl/day of heavy sour crude from the South American nation.
USD INDEX
BULLISH
  • After rising earlier in the week, the greenback retreated sharply on Friday, ending the week 0.6% lower.
SUPPLY
BEARISH
  • After declining for several weeks in a row, Baker Hughes reported 10 new oil rigs in service in the US this week. Canada also added 18 oil rigs.
  • The Energy Information Administration (EIA) reported no change in total US output last week.
  • In its 2019 Annual Energy Outlook, the EIA estimates that US crude oil production will continue to rise through 2027, then flatline at about 14 million bbl/day through 2040. Future growth will mostly come from tight oil development in the Lower 48.
DEMAND
NEUTRAL
  • In its 2019 Annual Energy Outlook, the EIA says it expects US energy consumption to remain relatively flat, despite an expanding economy, due to improved energy efficiency.
SENTIMENT
BULLISH
  • Short positions on managed money contracts for Brent continue to ease from the highs of mid-December.
  • WTI and Brent seem to have stabilized at their respective support levels of US$50 and US$60 a barrel.
  • The Crude Oil Volatility Index has also dropped significantly from the highs of last year.
OIL MARKETS
STREAM CLOSE %CHG L 52WK H
BRENT$61.64▼1.750.47
 
86.29
WTI$53.69▼0.242.53
 
76.41
CDN LT$48.04▼0.220.83
 
69.32
C5+$49.64▼0.837.04
 
71.40
WCS$44.14▲3.612.59
 
56.21

This week in oil markets:

  • Brent posted its first weekly decline for 2019, falling almost 2%.
  • WTI was almost unchanged, likely due to softness in the US dollar and the potential loss of Venezuelan barrels.
  • Western Canadian Select (WCS) rose almost 4% for the week as the discount to WTI narrowed to about US$9.50 a barrel.
  • Wholesale gasoline prices sank over 4%, while heating oil declined 1%.

This week's oil price forecasts:

  • UK-bank Barclays said record US crude production will offset any temporary disruptions that may come from Venezuelan crude sanctions. Barclays cut its 2019 Brent forecast from US$72 to US$70 a barrel.
  • Goldman Sachs says there's a "significant upside" ahead for crude oil suggesting that Brent is likely to overshoot its US$67.50 price target this year. The bank cites strong demand from China, falling supply out of OPEC and excessive pessimism over the global economy. The firm is especially bullish on midstream stocks, selecting Kinder Morgan as its top pick.

This week in natural gas markets:

  • According to the EIA, natural gas prices are forecasted to remain "historically low," leading to higher demand for gas-fired power plants. Although LNG exports will absorb some of the excess supply post-2022, LNG prices are expected to fall dramatically by 2030 due to excess global capacity. US demand for natural gas out of Western Canada is expected to continue to decline.
  • AECO gas prices rose 10% this week, ending Friday at $1.90/GJ. In contrast, Henry Hub gave back 9%, ending the week at US$3.18/MMBtu.
 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

JAN 24, 2019

US imports of Canadian crude surges to another 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:

  • Wholesale sales declined 1.0% in November to $63.0 billion, reversing gains from the previous month. Sales were down in most subsectors, with machinery, equipment, and building materials contributing to most of the declines.
  • Retail sales also declined 0.9% to $50.4 billion in November, blamed mostly on fewer auto sales and lower sales at gasoline stations, which dipped 5% due to lower gas prices.
  • The number of Canadians collecting Employment Insurance in November was roughly unchanged from the previous month. Ontario and New Brunswick saw an increase, while Quebec and the Prairie provinces posted declines. The total number of new claims rose by 3.9% to 237,000.

This week's US economic news:

  • U.S. initial claims for state unemployment benefits totalled 199,000 last week, down 13,000, returning to the lows of late 1969.
  • After a 35-day shutdown, US congress announced a tentative deal to reopen the government for three weeks, while negotiations on immigration and the border wall continue.
  • Trade negotiations continue between the US and China. The two countries have set a March 1 deadline to resolve their dispute, although US Commerce Secretary Wilbur Ross says the two countries remain "miles and miles" apart.

This week's economic forecasts:

  • China’s economic growth slowed to just 6.6% last year, the weakest in almost 30 years. Economists are expecting the government to unleash serious monetary spending to boost domestic consumption.
  • ECB President Mario Draghi kept interest rates unchanged in the Eurozone this week, but left the door open for a rate hike in the second half of this year. Draghi's list of concerns include Brexit talks, slowing Chinese demand and ongoing anti-government protests in France.
  • The IMF downgraded its forecast for global economic growth to 3.5% this year, rising to 3.6% in 2020. The agency warns of weakness in Europe, China and the ongoing fallout of US trade tensions.

This week in bonds and currencies:

  • Concerns over global economic growth send bond yields mostly lower this week, including the US, Canada, the UK and Germany.
  • The British pound continues to defy gravity, surging 2.5% on Friday. Another Brexit vote is scheduled for next week. The pound sterling has risen about 5% from the lows of early December.
  • Despite pessimism in the Eurozone and weak data out of France and Germany, the Euro was unchanged this week.
EQUITY MARKETS
    TSX SECTORS
52-WK
    SPX SECTORS
52-WK

US equity markets had a relatively uneventful week, with most indices ending Friday unchanged. European markets gained about 1% while Chinese markets rose closer to 2%. London's FTSE was this week's biggest loser, retreating over 2% due to a strengthening pound. 

In Toronto, the TSX eked out a 0.4% gain, dragged lower by a 3.1% decline in the energy sector. The broader S&P 500 posted a 0.2% loss, with energy giving back 1.5%.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Losses were seen across all energy subsectors this week, with Canadian producers and energy services stocks posting the biggest declines. Losses in US energy markets were also broadly based, with producers and refiners leading to the downside.

This was the first weekly loss for the energy sectors on both sides of the border.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Suncor EnergySU42.35▼-0.335.53
 
55.47D   W
Imperial OilIMO36.99▼-0.633.43
 
44.91D   W
Husky EnergyHSE15.99▼-4.313.33
 
22.99D   W
MIDSTREAM
EnbridgeENB47.74▼-0.437.36
 
48.94D   W
TransCanadaTRP55.33▲0.147.90
 
59.51D   W
Pembina PipelinePPL44.89▼-1.037.60
 
47.84D   W
Inter PipelineIPL21.01▼-2.618.60
 
25.70D   W
Keyera KEY27.47▼-2.624.05
 
38.91D   W
Gibson EnergyGEI19.36▼-3.215.68
 
23.32D   W
LARGE CAP E&P
Cdn Natural ResCNQ34.91▼-4.430.11
 
49.08D   W
Cenovus EnergyCVE10.28▼-4.78.74
 
14.84D   W
EncanaECA9.24▼-1.16.90
 
18.54D   W
TourmalineTOU18.42▼-4.015.84
 
26.19D   W
Vermilion EnergyVET30.92▼-5.426.67
 
49.82D   W
SERVICES
Pason SystemsPSI20.37▼-3.816.05
 
24.57D   W
EnerflexEFX17.16▼-1.313.55
 
18.72D   W
Mullen Group MTL12.10▼-5.611.39
 
16.93D   W
ShawcorSCL19.34▲2.315.11
 
29.50D   W
Secure EnergySES7.95▼-1.46.25
 
9.82D   W
REFINING & MARKETING
Parkland FuelPKI36.35▼-1.927.36
 
47.45D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Exxon MobilXOM71.72▼-1.764.65
 
89.30D   W
ChevronCVX113.22▼-1.0100.22
 
131.87D   W
MIDSTREAM
Kinder MorganKMI17.74▼-1.514.62
 
19.32D   W
Williams CoWMB26.67▲1.020.36
 
33.07D   W
ONEOKOKE62.44▼-1.250.26
 
71.99D   W
LARGE CAP E&P
ConocoPhillipsCOP66.99▼-1.350.18
 
80.24D   W
EOG ResourcesEOG99.10▼-1.982.04
 
133.53D   W
Occidental PetroOXY66.53▼-0.756.83
 
87.67D   W
Anadarko PetroAPC46.89▼-3.740.40
 
76.70D   W
Pioneer Natural ResPXD140.23▼-3.2119.08
 
213.40D   W
SERVICES
SchlumbergerSLB45.00▲0.634.99
 
79.09D   W
HalliburtonHAL32.10▼-0.524.70
 
56.26D   W
Baker HughesBHGE23.49▼-2.620.09
 
37.76D   W
Ntl-Oilwell VarcoNOV30.44▼0.024.27
 
49.08D   W
TechnipFMCFTI23.30▼-3.218.20
 
34.88D   W
REFINERS
Marathon PetroMPC64.08▼-3.054.29
 
88.45D   W
Phillips 66PSX93.02▼-2.478.44
 
123.97D   W
Valero EnergyVLO82.19▼-0.568.81
 
126.98D   W
HollyFrontierHFC55.06▼-1.642.42
 
83.28D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
Royal Dutch ShellRDS.A59.17▼-3.155.04
 
73.86D   W
TotalTOT54.21▼-0.649.70
 
65.69D   W
BPBP40.11▼-1.636.15
 
47.83D   W
EniE33.20▼-0.729.75
 
40.15D   W
EquinorEQNR22.35▼-1.819.95
 
28.93D   W
NEXT WEEK'S EVENTS

Tuesday:

  • API Weekly Statistical Bulletin
  • February contract expiry for Henry Hub

Wednesday:

  • StatsCan Payroll, Earning and Hours (Nov 2018 data)
  • US/China trade talks resume in Washington, DC
  • US interest rate decision and FOMC press conference
  • EIA Weekly Petroleum Status Report

Thursday:

  • StatsCan Canadian GDP by industry (Nov 2018 data)
  • StatsCan Industrial product and raw materials price indexes (Dec 2018 data)
  • EIA Weekly Natural Gas Storage Report
  • March contract expiry for Brent
  • February contract expiry for gasoline
  • Q4/2018 earnings: Valero Energy, Royal Dutch Shell, ConocoPhillips, CNX Resources

Friday:

  • EIA Petroleum Marketing Monthly (Nov 2018)
  • Baker Hughes Weekly Rig Counts
  • Q4/2018 earnings: Imperial Oil, ExxonMobil, Chevron
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
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