Energy stocks recover losses from December meltdown

Energy stocks recover losses from December meltdown

This week's Energy Market Summary for the week ending Friday February 15, 2019:
  • WCS takes a step back as discount widens
  • US output rising much faster than expected ...
    ... returning oil markets to oversupply later this year
  • Brent goes back to backwardation ...
    ... as sanctions, outages and cutbacks pile on
  • Risk appetite returns to global markets.
WHAT'S MOVING OIL PRICES THIS WEEK
GEOPOLITICS
BULLISH
  • Trade relations between US and China showed signs of improvement this week.
  • The situation in Venezuela appears to be stable for now.
USD INDEX
NEUTRAL
  • The US dollar squeaked out a 0.3% gain for the week, but remains below the 97 mark.
SUPPLY
BEARISH
  • The Energy Information Administration (EIA) says US output hit a record 12 million bbl/day in January, and warned that rising US output will more than offset losses from other global producers, returning oil markets to a surplus later this year.
  • The EIA raised its US output forecast for this year and next by about 3%, to 12.4 and 13.2 million bbl/day, respectively.
  • The International Energy Agency (IEA) raised it non-OPEC supply growth forecast by 200,000 bbl/day, to 1.8 million bbl/day in 2019. The agency also warned supply will outpace demand for most of this year.
  • OPEC production declined by 797,000 bbl/day in January, falling to 30.8 million bbl/day. The cartel also tweaked its 2019 supply growth forecast by 80,000 bbl/day, to 2.18 million bbl/day.
  • Saudi Arabia says they plan to cut output by 500,000 bbl/day more than originally planned, potentially reducing the kingdom's output to 9.8 million bbl/day in March.
  • The 1 million bbl/day Safaniya oil field in the Persian Gulf remains offline to repair an underwater cable. Operator Saudi Aramco has not provided a timetable for restart, but the outage is expected to last to the end of the month.
  • Three more oil rigs were placed into service in the US this week, bringing the total to 857. Canada lost 6 oil rigs, falling to 152 on Friday.
DEMAND
BEARISH
  • In its latest 2019 Energy Outlook, BP warns that Chinese demand for energy will continue to decelerate as the country's economic growth rate slows. The company expects world oil demand to plateau at 108 million bbl/day by the mid-2030s.
  • OPEC revised its demand growth forecast to 1.24 million bbl/day in 2019, down 50,000 bbl/day from January estimates.
  • The IEA left its 2019 demand growth forecast unchanged at 1.4 million bbl/day.
SENTIMENT
BULLISH
  • Brent prices broke out to the highs of mid-November on Friday. Futures have moved into backwardation due to supply cuts in the near-term. Traders have also added to their net long positions for managed money contracts.
  • WTI price action remains positive, with prices managing to hold above the key support level of US$55 a barrel. WTI remains firmly in contango, indicating adequate supply in the short-term.
OIL MARKETS
STREAM CLOSE %CHG L 52WK H
BRENT$66.25▲6.750.47
 
86.29
WTI$55.59▲5.442.53
 
76.41
CDN LT$49.09▲0.037.04
 
71.40
C5+$51.14▲1.620.83
 
69.32
WCS$41.09▼4.612.59
 
56.21

Western Canadian Select (WCS) lost ground this week, as its discount to WTI widened from about US$10 to almost US$15 a barrel on Wednesday. The sharp jump was precipitated by expiry of the Canadian March contract last Wednesday. The corresponding March contract for WTI expires this upcoming Wednesday.

Goldman Sachs says lower global output plus lower inventories should equal higher oil prices in the near term. The investment firm increased its Q2 Brent forecast by US$4.50 a barrel, to US$67.50. However, Goldman wasn't so optimistic for the second half of the year, due to rising output from US producers.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

FEB 13, 2019

CRUDE STOCKPILES CONTINUE TO BUILD AS REFINERIES CUT THROUGHPUT

 
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:

  • Manufacturing sales declined for the third month in a row, falling 1.3% to $56.4 billion in December. A 10% drop in petroleum and coal product sales were mostly to blame for the decline.
  • For the full-year 2018, manufacturing sales rose 5.4% y/y to $686 billion, marking the third consecutive annual increase. Sales of energy products contributed to most of the gains.
  • Yields on the Canadian 10-year nudged up to almost 1.9% on Friday, while the loonie gained 0.25% for the week.

This week's US economic data:

  • Retail sales slumped 1.2% in December, much worse than expected, and the steepest decline since September 2009.
  • Industrial output also declined 0.6% in January, blamed mostly on lower auto manufacturing.
  • The consumer price index (CPI) was unchanged for the third month in a row, due mostly to a 3% decline in energy prices. On an annualized basis, CPI declined from 1.9% to 1.6%, while core inflation was unchanged at 2.2%.
  • Most US bond yields moved higher this week, particularly on the short end of the curve. The yield curve (10 vs 2-year) dived 4 basis points for the week, ending Friday at 0.14%, and returning to the lows of mid-December.
  • The US dollar rose above 97 earlier in the week, but then gave back most of its gains. The greenback did manage a 0.3% increase for the week.

Elsewhere in the world:

  • Bond yields in Germany, the UK and Japan also ticked slightly higher for the week.
  • The Euro, pound and Swiss franc all retreated about 0.5% for the week. The yen lost almost 1% as risk-appetite returns to global markets.
EQUITY MARKETS
    TSX SECTORS
52-WK
    SPX SECTORS
52-WK

Equity markets were buoyed by news that the Trump Administration may take a softer stance on China, and a potential deal to avoid another government shutdown.

Small caps were the best performers in US markets this week. The Russell 2000 surged over 4%, returning to the highs of early November. The Dow Jones Industrial Average gained almost 800 points this week, marking eight consecutive weekly gains, and now recovering all losses from its December meltdown. 

The broader S&P 500 Index also rose 2.5% for the week, led higher by more offensive sectors. Energy was the best performer this week, rising almost 5%.

In Toronto, the TSX gained 1.3% for the week, now returning to levels last seen in mid-October. Energy was also the best performing sector, and has also recovered all losses from December.

ENERGY SECTOR PERFORMANCE
TSX ENERGY SUBSECTORS
SPX ENERGY SUBSECTORS

Producers were the big winners on both sides of the border this week. Except for a handful of names, most Canadian and US energy components ended the week higher.

TSX ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Suncor EnergySU44.88▲4.835.53
 
55.47D   W
Imperial OilIMO36.22▲2.133.43
 
44.91D   W
Husky EnergyHSE15.62▲4.513.33
 
22.99D   W
MIDSTREAM
EnbridgeENB47.40▼-1.137.36
 
49.70D   W
TransCanadaTRP56.74▲2.847.90
 
59.51D   W
Pembina PipelinePPL48.66▲3.337.60
 
49.05D   W
Inter PipelineIPL21.32▲1.918.60
 
25.66D   W
Keyera KEY28.57▲2.024.05
 
38.91D   W
Gibson EnergyGEI21.27▲8.515.68
 
23.32D   W
LARGE CAP E&P
Cdn Natural ResCNQ36.87▲8.030.11
 
49.08D   W
Cenovus EnergyCVE11.48▲15.68.74
 
14.84D   W
EncanaECA9.14▲13.46.90
 
18.54D   W
TourmalineTOU20.34▲12.015.84
 
26.19D   W
Vermilion EnergyVET32.58▲4.626.67
 
49.67D   W
SERVICES
Pason SystemsPSI20.42▲4.216.61
 
24.57D   W
EnerflexEFX17.01▲1.613.55
 
18.72D   W
Mullen Group MTL11.91▲3.511.26
 
16.93D   W
ShawcorSCL20.60▲4.915.11
 
28.89D   W
Secure EnergySES8.59▲11.46.25
 
8.91D   W
REFINING & MARKETING
Parkland FuelPKI38.39▲3.327.96
 
47.45D   W
S&P 500 ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
INTEGRATED
Exxon MobilXOM77.71▲5.064.65
 
87.36D   W
ChevronCVX119.35▲1.5100.22
 
131.08D   W
MIDSTREAM
Kinder MorganKMI18.80▲4.314.62
 
18.98D   W
Williams CoWMB27.27▲1.520.36
 
32.22D   W
ONEOKOKE67.71▲4.150.26
 
71.99D   W
LARGE CAP E&P
ConocoPhillipsCOP70.18▲5.952.78
 
80.24D   W
EOG ResourcesEOG100.25▲8.482.04
 
133.53D   W
Occidental PetroOXY67.19▲3.456.83
 
87.67D   W
Anadarko PetroAPC45.23▲8.140.40
 
76.70D   W
Pioneer Natural ResPXD145.35▲7.1119.08
 
213.40D   W
SERVICES
SchlumbergerSLB44.95▲5.134.99
 
75.43D   W
HalliburtonHAL31.85▲7.224.70
 
54.91D   W
Baker HughesBHGE25.83▲5.020.09
 
37.76D   W
Ntl-Oilwell VarcoNOV29.81▲5.124.27
 
49.08D   W
TechnipFMCFTI23.54▲5.318.20
 
34.39D   W
REFINERS
Marathon PetroMPC65.15▲3.954.29
 
88.45D   W
Phillips 66PSX95.99▲2.678.44
 
123.97D   W
Valero EnergyVLO84.40▲0.368.81
 
126.98D   W
HollyFrontierHFC57.89▲7.342.42
 
83.28D   W
NYSE ADR ENERGY STOCKS
COMPANY TICKER CLOSE %CHG L 52WK H CHARTS
Royal Dutch ShellRDS.A62.56▼-0.555.04
 
73.86D   W
TotalTOT56.29▲2.049.70
 
65.69D   W
BPBP42.29▼-0.536.28
 
47.83D   W
EniE34.24▲3.829.75
 
40.15D   W
EquinorEQNR23.10▲2.219.95
 
28.93D   W
NEXT WEEK'S EVENTS

Monday:

  • Markets closed for Family Day (Canada) and Presidents' Day (USA)

Tuesday:

  • BC Budget 2019
  • Q4/2018 earnings: Devon Energy

Wednesday:

  • Minutes released from January FOMC meeting
  • March contract expiry for West Texas Intermediate
  • API Weekly Statistical Bulletin (holiday schedule)

Thursday:

  • StatsCan Employment Insurance data (Dec 2018)
  • StatsCan Wholesale Trade data (Dec 2018)
  • BoC Governor Stephen Poloz speaks in Montreal, QC
  • EIA Weekly Petroleum Status Report (holiday schedule)
  • EIA Weekly Natural Gas Storage Report
  • Q4/2018 earnings: Keyera Corp, TC Pipelines

Friday:

  • Deadline for NEB report on Trans Mountain Expansion Reconsideration
  • StatsCan Retail Trade data (Dec 2018)
  • Baker Hughes Weekly Rig Counts
  • Q4/2018 earnings: Pembina Pipeline
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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