Energy stocks recover losses from December meltdown
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.
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 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.
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.
|Suncor Energy||SU||44.88||▲4.8||35.53||55.47||D W|
|Imperial Oil||IMO||36.22||▲2.1||33.43||44.91||D W|
|Husky Energy||HSE||15.62||▲4.5||13.33||22.99||D W|
|Pembina Pipeline||PPL||48.66||▲3.3||37.60||49.05||D W|
|Inter Pipeline||IPL||21.32||▲1.9||18.60||25.66||D W|
|Gibson Energy||GEI||21.27||▲8.5||15.68||23.32||D W|
|LARGE CAP E&P|
|Cdn Natural Res||CNQ||36.87||▲8.0||30.11||49.08||D W|
|Cenovus Energy||CVE||11.48||▲15.6||8.74||14.84||D W|
|Vermilion Energy||VET||32.58||▲4.6||26.67||49.67||D W|
|Pason Systems||PSI||20.42||▲4.2||16.61||24.57||D W|
|Mullen Group||MTL||11.91||▲3.5||11.26||16.93||D W|
|Secure Energy||SES||8.59||▲11.4||6.25||8.91||D W|
|REFINING & MARKETING|
|Parkland Fuel||PKI||38.39||▲3.3||27.96||47.45||D W|
|Exxon Mobil||XOM||77.71||▲5.0||64.65||87.36||D W|
|Kinder Morgan||KMI||18.80||▲4.3||14.62||18.98||D W|
|Williams Co||WMB||27.27||▲1.5||20.36||32.22||D W|
|LARGE CAP E&P|
|EOG Resources||EOG||100.25||▲8.4||82.04||133.53||D W|
|Occidental Petro||OXY||67.19||▲3.4||56.83||87.67||D W|
|Anadarko Petro||APC||45.23||▲8.1||40.40||76.70||D W|
|Pioneer Natural Res||PXD||145.35||▲7.1||119.08||213.40||D W|
|Baker Hughes||BHGE||25.83||▲5.0||20.09||37.76||D W|
|Ntl-Oilwell Varco||NOV||29.81||▲5.1||24.27||49.08||D W|
|Marathon Petro||MPC||65.15||▲3.9||54.29||88.45||D W|
|Phillips 66||PSX||95.99||▲2.6||78.44||123.97||D W|
|Valero Energy||VLO||84.40||▲0.3||68.81||126.98||D W|
- Markets closed for Family Day (Canada) and Presidents' Day (USA)
- BC Budget 2019
- Q4/2018 earnings: Devon Energy
- Minutes released from January FOMC meeting
- March contract expiry for West Texas Intermediate
- API Weekly Statistical Bulletin (holiday schedule)
- 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
- 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