TSX energy sector lags as investors digest fallout from Alberta's curtailment experiment

TSX energy sector lags as investors digest fallout from Alberta's curtailment experiment

This week's Energy Market Summary for the week ending Friday February 1, 2019:
  • Trump moves to discourage purchase of Venezuelan heavy crude
  • OPEC output falls sharply in January
  • WTI tops US$55 for the first time since mid-November
  • Canadian crude benchmarks stage spectacular January rally
  • TSX erases all losses from December
  • Canadian energy sector lags, despite higher oil prices ...
    ... as investors digest impacts of Alberta's curtailment program.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • The Trump Administration imposed sanctions on Venezuela's state-owned PDVSA this week in support of opposition leader Juan Gauido. The US purchases about 500,000 bbl/day of mostly heavy crude from Venezuela.
  • Foreign entities trading Venezuelan crude will be barred from using US financial systems after April.
USD INDEX
NEUTRAL
  • Little movement in the US dollar this week, which now sits just above its 200-day moving average.
SUPPLY
BULLISH
  • OPEC output declined to 31 million bbl/day in January, down 890,000 bbl/day from December's level.
  • According to finalized estimates from the US Energy Information Administration (EIA), the US produced a record 11.9 million bbl/day in November, up 350,000 bbl/day from the previous month, and 200,000 bbl/day higher than preliminary weekly estimates.
  • According to Baker Hughes, the number of oil rigs in service in the US declined by 15 this week, falling to 847, the lowest since last May. Canada added another 13 oil rigs, bringing the total to 159.
  • The Alberta government raised its production cap by 75,000 bl/day for the months of February and March. The province says the move is in response to falling stockpiles, which have been declining faster than expected.
DEMAND
NEUTRAL
  • No new news on the demand front this week.
SENTIMENT
BULLISH
  • WTI remains firmly in contango, although price spreads have moderated slightly in the near term.
  • The US benchmark remains in a solid uptrend, breaking above US$55 this week for the first since last November.
  • Contango on the Brent futures is easing, flattening out the futures curve considerably.
  • The UK benchmark has lagged WTI, remaining stuck in the low US$60s for the latter half of January.
  • As of last week, shorts have come off Brent's managed money contracts, while long positions increased slightly. US data for WTI has yet to be updated by the CFTC due to the government shutdown.
OIL MARKETS
STREAM CLOSE %CHG L 52WK H
BRENT$62.75▲1.850.47
 
86.29
WTI$55.26▲2.942.53
 
76.41
CDN LT$51.39▲7.020.83
 
69.32
C5+$53.01▲6.837.04
 
71.40
WCS$45.86▲3.912.59
 
56.21

Oil prices all moved higher this week, with most benchmarks returning to the highs of last November. Western Canadian Select (WCS) posted its fifth week of solid gains, rising another 4% w/w on Friday. Canadian Light and Edmonton Condensate (C5+) also rose almost 7% this week, as discounts to WTI narrowed considerably.

For the month of January, oil prices averaged as follows (% change m/m):

  • Brent: US$60.12 +4.2%
  • WTI: $51.55 +5.2%
  • C5+: US$48.52 +14%
  • Canadian Light: US$47.37 +22%
  • WCS: US$41.06 +32%

Henry Hub natural gas prices continue to be very volatile, falling 14% this week due to wild temperature swings in the US Midwest and East Coast. Alberta's AECO gas also declined 13% w/w, as the February contract expired on Thursday.

Natural gas prices averaged as follows for the month of January (% change m/m):

  • Henry Hub: US$3.10 -21%
  • AECO (near month): US$1.38 +7.9%
 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

JAN 30, 2019

CRUDE STOCKPILES TICK HIGHER AS REFINERIES DIAL BACK PRODUCTION

 
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 BEEN DELAYED DUE TO THE RECENT GOVERNMENT SHUTDOWN.
CURRENCIES & BONDS

This week's Canadian economic data:

  • After a 0.3% increase in October, real GDP edged down 0.1% in November. Declines were seen in wholesale trade (-1.1%) and manufacturing (-0.5%). Oil and gas extraction contracted 1.6% in November, while demand for drilling services rose 2.4%. Lower output from Canada's refining sector also contributed to the downside.
  • The Industrial Product Price Index (IPPI) declined 0.7% in December, mainly due to lower energy prices. Prices for energy and petroleum products fell 7.4%, reversing all gains from the previous month.
  • The Raw Materials Price Index (RMPI), rose 3.8%, due primarily to a 10% rebound in crude oil prices.
  • Average weekly earnings were once again unchanged in November. Non-farm salaries are now up just 2% y/y, down from 2.5% in October.

This week's US economic news:

  • The US Federal Reserve kept interest rates unchanged, and signalled intentions to be more "patient" with future rate hikes, backing off from its previous plan of normalizing rates.
  • The US unemployment rate ticked higher, from 3.9% to 4.0%, due to the flood of civil servants that applied for benefits in January. Job growth surged again in January, with employers hiring at the fastest pace in almost a year.

This week in bonds and currencies:

  • Global bond yields mostly posted losses, including the US, Canada and Eurozone. Japanese 10-year rates fell below zero again this week.
  • Higher commodity prices helped boost the loonie and Aussie dollar by almost 1%.
  • The pound sank almost 1%, after the UK parliament once again rejected the latest Brexit deal.
  • The Euro rose 0.7%, while the US dollar ticked lower by 0.2%.
EQUITY MARKETS
    TSX SECTORS
52-WK
    SPX SECTORS
52-WK

A sea of green in North American equity markets this week, as the threat of future rate hikes eases on both sides of the border. The S&P 500 rose 1.6% while the TSX rose almost 1%.

A lower pound helped boost London's FTSE over 3%, making it the best performing developed market for the week.

After one of the worst Decembers in history, equity markets staged a spectacular rally in January. For the month of January, the S&P 500 gained 7.9%, one of the best monthly gains in recent history. In Toronto, the TSX gained 8.5% m/m, erasing all losses from December.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Energy was the best performing sector in US markets this week, rising 3.2%. Heavy-weights ExxonMobil and Chevron were the biggest winners, along with large cap midstream names and refining stocks. Energy services continue to lag in US markets.

In Canadian energy markets, the sector declined 0.5%, despite higher prices for Canadian oil benchmarks. Larger-cap producers led to the downsides. Integrated names continue to be negatively impacted by Alberta's production caps.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Suncor EnergySU42.37▲0.035.53
 
55.47D   W
Imperial OilIMO35.54▼-3.933.43
 
44.91D   W
Husky EnergyHSE15.64▼-2.213.33
 
22.99D   W
MIDSTREAM
EnbridgeENB48.39▲1.437.36
 
48.64D   W
TransCanadaTRP55.330.047.90
 
59.51D   W
Pembina PipelinePPL46.89▲4.537.60
 
47.84D   W
Inter PipelineIPL20.88▼-0.618.60
 
25.66D   W
Keyera KEY28.28▲2.924.05
 
38.91D   W
Gibson EnergyGEI20.24▲4.515.68
 
23.32D   W
LARGE CAP E&P
Cdn Natural ResCNQ35.00▲0.330.11
 
49.08D   W
Cenovus EnergyCVE10.06▼-2.18.74
 
14.84D   W
EncanaECA8.97▼-2.96.90
 
18.54D   W
TourmalineTOU17.76▼-3.615.84
 
26.19D   W
Vermilion EnergyVET31.96▲3.426.67
 
49.67D   W
SERVICES
Pason SystemsPSI20.48▲0.516.05
 
24.57D   W
EnerflexEFX17.42▲1.513.55
 
18.72D   W
Mullen Group MTL12.09▼-0.111.39
 
16.93D   W
ShawcorSCL19.98▲3.315.11
 
28.89D   W
Secure EnergySES8.05▲1.36.25
 
9.02D   W
REFINING & MARKETING
Parkland FuelPKI37.29▲2.627.36
 
47.45D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Exxon MobilXOM75.92▲5.964.65
 
89.25D   W
ChevronCVX118.37▲4.5100.22
 
131.08D   W
MIDSTREAM
Kinder MorganKMI18.35▲3.414.62
 
18.67D   W
Williams CoWMB27.43▲2.820.36
 
32.22D   W
ONEOKOKE65.16▲4.450.26
 
71.99D   W
LARGE CAP E&P
ConocoPhillipsCOP68.68▲2.550.18
 
80.24D   W
EOG ResourcesEOG98.85▼-0.382.04
 
133.53D   W
Occidental PetroOXY68.04▲2.356.83
 
87.67D   W
Anadarko PetroAPC48.45▲3.340.40
 
76.70D   W
Pioneer Natural ResPXD143.01▲2.0119.08
 
213.40D   W
SERVICES
SchlumbergerSLB44.56▼-1.034.99
 
75.56D   W
HalliburtonHAL32.12▲0.124.70
 
54.91D   W
Baker HughesBHGE24.35▲3.720.09
 
37.76D   W
Ntl-Oilwell VarcoNOV29.91▼-1.724.27
 
49.08D   W
TechnipFMCFTI23.17▼-0.618.20
 
34.39D   W
REFINERS
Marathon PetroMPC65.47▲2.254.29
 
88.45D   W
Phillips 66PSX94.21▲1.378.44
 
123.97D   W
Valero EnergyVLO85.26▲3.768.81
 
126.98D   W
HollyFrontierHFC55.20▲0.342.42
 
83.28D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
Royal Dutch ShellRDS.A62.84▲6.255.04
 
73.86D   W
TotalTOT55.31▲2.049.70
 
65.69D   W
BPBP41.34▲3.136.15
 
47.83D   W
EniE33.91▲2.129.75
 
40.15D   W
EquinorEQNR23.02▲3.019.95
 
28.93D   W
NEXT WEEK'S EVENTS

Tuesday:

  • President Trump delivers 2nd State of the Union Address
  • API Weekly Statistical Bulletin
  • Q4/2018 earnings: Suncor, BP, Plains All American

Wednesday:

  • EIA Weekly Petroleum Status Report
  • Q4/2018 earnings: Anadarko Petroleum

Thursday:

  • EIA Weekly Natural Gas Storage Report
  • Q4/2018 earnings: Marathon Petroleum, MPLX, Andeavor Logistics

Friday:

  • StatsCan Labour Force Survey (Jan data)
  • 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
  • Markets take a February pause after spectacular January rally

    Markets take a February pause after spectacular January rally

    Energy sector posts first weekly decline since late December

    Energy sector posts first weekly decline since late December

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