Author: Consultant

The Canada Energy Regulator is citing safety concerns as its reason for refusing a request by Trans Mountain Corp. for a pipeline variance.

In a written statement released Wednesday, the regulator provided its explanation for its denial earlier this month of the Crown corporation’s request for permission to use a different diameter, wall thickness and coating for a 2.3-kilometre stretch of the Trans Mountain pipeline expansion project currently under construction in B.C.

The company said at the time it had run into challenges drilling through hard rock in the area, and warned of a possible 60-day delay in the completion of the project if it isn’t granted a variance.

But the regulator said Wednesday it has serious concerns with the quality of materials Trans Mountain has procured to construct the variance, adding it doesn’t believe the company has demonstrated it can guarantee an appropriate level of safety and pipeline integrity if it goes ahead with the change.

“Having pipe or components with mechanical properties not meeting specifications could lead to failure of the pipe or components under pressure testing or operating conditions, which could impact people and the environment,” the Canada Energy Regulator’s written statement said.

The development is just the latest in a series of hurdles Trans Mountain Corp. has faced as it races against the clock to finish its massive pipeline construction project.

The Trans Mountain pipeline is Canada’s only oil pipeline to the west coast, and its expansion will boost the pipeline’s capacity to 890,000 barrels per day from 300,000 bpd currently.

The project’s completion, which had been expected in early 2024, is eagerly awaited by this country’s energy industry, which will benefit from improved access to export markets.

The pipeline expansion is also expected to reduce the Western Canada Select differential, which is a term for the discount Canadian oil companies typically take on their product in part due to lack of export capacity.

But the pipeline project has run into construction difficulties in its home stretch. Trans Mountain has already had to alter the route slightly near Kamloops, B.C. due to difficulty drilling a tunnel.

Last week, Trans Mountain asked the regulator to reconsider its denial of the variance request, saying the company now believes its construction challenges in B.C. are more significant than first indicated.

It said it now has reason to believe that proceeding with the current construction plan through complex hard rock conditions could compromise a borehole and result in the failure of drilling equipment.

This could result in a “catastrophic” two-year delay for the project, the company said, adding Trans Mountain Corp. will incur $200 million in lost revenues for each month of delay.

The regulator has not yet responded to this second variance request. In its application, Trans Mountain asked the regulator to make a decision before Jan. 9 in order to prevent unnecessary delays.

The federal government purchased the Trans Mountain pipeline in 2018 in an effort to get the expansion project over the finish line after it was scuttled by previous owner Kinder Morgan Canada.

The project’s costs have spiralled through the course of construction from an original estimate of $5.4 billion to the most recent estimate of $30.9 billion.

The number of Americans applying for unemployment benefits rose slightly last week but still remained at historically low levels despite high interest rates intended to slow hiring and cool the economy.

The Labor Department reported Thursday that jobless claims were up by 2,000 to 205,000 the week that ended Dec. 16. The four-week average of claims, which smooths out week-to-week ups and downs, fell by 1,500 to 212,000.

Overall, 1.87 million Americans were collecting jobless benefits the week that ended Dec. 9, little changed from the week before.

Weekly unemployment claims are a proxy for layoffs. They have remained at extraordinarily low levels in the face of high interest rates.

The Federal Reserve began raising interest rates last year to combat the inflation that surged as the result of an unexpectedly strong economic rebound from the COVID-19 recession of 2020. The Fed has raised its benchmark rate 11 times since March 2022.

And inflation has eased. Consumer prices were up 3.1 per cent from a year earlier, down from a four-decade high 9.1 per cent in June 2022 but still above the Fed’s 2 per cent target. The Fed has left rates alone at its last three meetings – most recently last week – and is now forecasting that it will reverse policy and cut rates three times next year.

When the Fed started raising rates, many economists predicted that the United States – the world’s largest economy – would slide into recession. But the economy and the job market have proven surprisingly resilient. The unemployment rate, for example, has come in below 4 per cent for 22 straight months, the longest such streak since the 1960s.

The combination of decelerating inflation and low unemployment has raised hopes that the Fed is managing a so-called soft landing – raising rates just enough to tame inflation without causing a recession.

Linamar Corp. LNR-T +1.76%increasesays it’s reached an agreement to acquire Bourgault Industries Ltd. in a deal worth $640-million.

The Guelph-based company says Bourgault is a world-class agriculture equipment manufacturer.

Linamar says Bourgault will become part of its new agriculture division within its wider industrial segment.

Linamar CEO and executive chair Linda Hasenfratz says the acquisition offers “tremendous opportunity” for her company to diversify and grow its agriculture platform.

COO and president Jim Jarrell says Bourgault is Linamar’s third strategic acquisition of 2023 and will help it better serve the core Western Canadian and U.S. Midwest farm base.

The deal is expected to close in the first quarter of 2024.

U.S. and Canadian stocks closed lower on Wednesday after an abrupt mid-afternoon sell-off snapped a rally that had been driven by falling interest rates and the Federal Reserve’s dovish turn.

All three major U.S. stock indexes, as well as Canada’s S&P/TSX Composite Index, began to veer lower around 2:30 p.m. ET, having shown little conviction in either direction for much of the session.

U.S. stocks were “near all time highs, they hit resistance,” Jay Hatfield, portfolio manager at InfraCap in New York, noting the downturn was “surprisingly vociferous, things went from hot to cold real fast.”

“It’s surprising how aggressive the sell-off is, but it makes sense considering how far we’ve come,” Hatfield added.

Some traders said the selloff could have been aggravated by large purchases of near-term put options on the S&P 500, including put contracts that would guard against a drop below the 4,755 level on the index by the end of the session.

Put options convey the right to sell shares at a fixed price in the future and at times options-linked hedging activity can heighten volatility.

During the session, the S&P 500 got within 0.5% of its all-time closing high. Reaching a new closing high would have confirmed the benchmark index had been in a bull market since closing at the bear market floor in October 2022.

The index is now more than 2.0% below its record closing high.

The TSX had been trading at an 18-month high prior to Wednesday’s selloff.

“It feels like, as much as anything, just buyer exhaustion,” said Greg Taylor, a portfolio manager at Purpose Investments. “We’ve had such a big run in the last seven or eight weeks, it feels like everyone’s priced in a lot of good news and pulled it forward from what we were expecting for next year.”

The TSX ended down 238.82 points, or 1.15%, at 20,600.81, after posting on Monday its highest closing level since June 2022.

The materials group lost 2.2% as gold and copper prices fell.

Energy also lost ground, falling 1%, even as the price of oil settled 0.4% higher at US$74.22 a barrel.

“Oil prices seem to have found some solace from the missile attacks against commercial ships in the Red Sea, which threaten to disrupt global trade routes,” said Marios Hadjikyriacos, senior investment analyst at forex broker XM. “Alas, it’s questionable whether such concerns will keep oil prices supported for long, against the backdrop of slowing demand next year coupled with record-high U.S. crude production.”

All ten major TSX sectors ended lower, with consumer discretionary falling 1.5% and heavily-weighted financials down 0.8%.

At the conclusion of its policy meeting last Wednesday, the Federal Open Market Committee signaled that it had reached the end of its tightening cycle and opened the door to rate cuts in the coming year.

Chicago Fed President Austan Goolsbee late Tuesday reiterated that the rate at which inflation cools to the Fed’s annual 2% target will drive policy on rate reduction.

At last glance, financial markets were pricing in a 71.1% likelihood of that first cut arriving as soon as March, according to CME’s FedWatch tool.

On the economic front, a bigger-than-expected jump in U.S. consumer confidence and a surprise increase in existing home sales initially helped turn the major indexes green.

The Commerce Department is expected to wrap up the week with its third and final take on third-quarter GDP on Thursday, to be followed on Friday by its wide-ranging Personal Consumption Expenditures (PCE) report, which will cover income growth, consumer spending and, crucially, inflation.

The Dow Jones Industrial Average fell 475.92 points, or 1.27%, to 37,082, the S&P 500 lost 70.02 points, or 1.47%, to 4,698.35 and the Nasdaq Composite dropped 225.28 points, or 1.5%, to 14,777.94.

All 11 major sectors in the S&P 500 closed in the red, with consumer staples suffering the steepest percentage decline after packaged food company General Mills cut its sales forecast.

FedEx slid 12.1% after the package deliver missed quarterly profit estimates and cut its full-year revenue forecast.

FedEx rival United Parcel Service dipped 2.9%.

Alphabet gained 1.2% after the company announced it was restructuring Google’s ad sales unit.

Management consulting firm Aon tumbled 6.0% following its announcement that it would buy privately held insurance broker NFP in a $13.4 billion deal.

Declining issues outnumbered advancing ones on the NYSE by a 2.64-to-1 ratio; on Nasdaq, a 2.26-to-1 ratio favored decliners. The S&P 500 posted 36 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 210 new highs and 89 new lows. Volume on U.S. exchanges was 12.84 billion shares, compared with the 12.15 billion average for the full session over the last 20 trading days.

Reuters, Globe staff

February WTI crude oil (CLG24) this morning is up +0.78 (+1.05%), and Feb RBOB gasoline (RBG24) is down -0.22 (-0.10%).

Crude oil and gasoline prices this morning are mixed, with crude climbing to a 2-1/2 week high.  Concerns over disruptions to Middle East crude supplies are boosting oil prices as more oil shippers avoid the Red Sea and ship crude around the southern tip of Africa due to the attacks on commercial shipping in the Red Sea by Houthi militants.  Crude prices fell back from their best levels on a bearish EIA report that showed an unexpected increase in weekly U.S. oil supplies and record U.S. crude production.

Geopolitical risks are bullish for crude prices after BP joined Equinor and Euronav in halting crude oil shipments on tankers through the Red Sea because of increasingly frequent attacks on ships in the region.  The attacks on oil tankers in the Middle East are forcing shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting crude oil supplies.  At least twenty merchant ships have been attacked or approached around Yemen by Iranian-backed Houthi militants in the Red Sea since Israel’s war with Hamas broke out in October.  

Today’s better-than-expected global economic news supports energy demand and crude prices.  U.S. Nov existing home sales unexpectedly rose +0.8% m/m to 3.82 million, stronger than expectations of a decline to 3.78 million.  Also, the Conference Board U.S. Dec consumer confidence index rose +9.7 to a 5-month high of 110.7, stronger than expectations of 104.5.  In addition, the Eurozone Dec consumer confidence index rose +1.8 to a 5-month high of -15.1, stronger than expectations of -16.3.

A supportive factor for crude was last Monday’s projection from the American Automobile Association (AAA) that a record 7.5 million people are expected to fly from Dec 23 to Jan 2, the most since the AAA began tracking the data in 2000.  

An increase in Russian crude oil exports is bearish for crude oil prices.  Tanker-tracking data monitored by Bloomberg shows refined fuel shipments from Russia climbed to 3.2 million bpd in the four weeks to Dec 10, up +114,000 bpd from the prior week and the highest five months.

On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members nor how Russia’s -300,000 bpd export cut would factor into the new totals.  Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique.  The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions may only be voluntary.

Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024.  The move would maintain Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years.  Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024.  OPEC Nov crude production fell -140,000 bpd to 28.050 million bpd.

The rift between Angola and other OPEC+ members remains and is a bearish factor that signals more infighting among members.  Angola OPEC governor Pedro said on Nov 30 that his country rejects OPEC’s quota and “Angola will produce above the quota determined by OPEC.”  Angola is Africa’s second-largest crude producer, and OPEC governor Pedro said his country will pump 1.18 million bpd in January, above the 1.11 million quota set out by OPEC.

Weak demand for crude in China, the world’s biggest crude importer, is bearish for prices.  China’s crude imports were 42.45 MMT, down -13% m/m from Oct and a 7-month low.  

A decline in crude in floating storage is bullish for prices.  Monday’s weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -13% w/w to 73.32 million bbl as of Dec 15.

Today’s weekly EIA crude report was bearish for crude prices.  EIA crude inventories unexpectedly rose by +2.91 million bbl versus expectations of a -2.3 million bbl draw.  Also, EIA gasoline stockpiles rose +2.91 million bbl, more than expectations of +1.35 million bbl.  In addition, EIA distillate supplies rose +1.49 million bbl, above expectations of +691,000 bbl.  Finally, crude supplies at Cushing, the delivery point of WTI futures, rose +1.686 million bbl to a 4-month high.

Today’s EIA report showed that (1) U.S. crude oil inventories as of Dec 15 were -0.7% below the seasonal 5-year average, (2) gasoline inventories were -1.5% below the seasonal 5-year average, and (3) distillate inventories were -10.1% below the 5-year seasonal average.  U.S. crude oil production in the week ending Dec 15 rose +1.5% w/w to a record 13.3 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Dec 15 fell by -2 rigs to 501 rigs, modestly above the 1-3/4 year low of 494 rigs from Nov 10.  The number of U.S. oil rigs has fallen this year after moving sharply higher during 2021-22 from the 18-year pandemic low of 172 rigs posted in Aug 2020 to a 3-1/2 year high of 627 rigs in December 2022.
 

U.S. crude stocks, gasoline and distillate inventories rose last week, the U.S. Energy Information Administration (EIA) said on Wednesday.

Crude inventories rose by 2.9 million barrels in the week to Dec. 15 to 443.7 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.3 million-barrel drop.

EIA also said U.S. crude output rose to a record 13.3 million barrels per day (bpd) last week, up from the prior all-time high of 13.2 million bpd.

U.S. and Brent crude futures pared gains on the surprise build in crude stocks and the bigger-than-expected builds in gasoline and distillate inventories, and record weekly crude production.

“Market participants didn’t like the builds in the big three: crude, gasoline and distillate inventories,” said Giovanni Staunovo, analyst at UBS, a bank.

Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.7 million barrels in the last week, EIA said.

Refinery crude runs rose by 403,000 bpd in the last week, EIA said.

Refinery utilization rates rose by 2.2 per cent in the week.

U.S. gasoline stocks rose by 2.7 million barrels in the week to 226.7 million barrels, EIA said, compared with analysts’ expectations in a Reuters poll for a 1.2 million-barrel rise.

Distillate stockpiles, which include diesel and heating oil, rose by 1.5 million barrels in the week to 115 million barrels, versus expectations for a 500,000 barrel rise, the EIA data showed.

Net U.S. crude imports fell last week by 117,000 bpd, EIA said.

Canada’s annual inflation rate held at 3.1 per cent in November, higher than analyst expectations of 2.9 per cent, Statistics Canada said Tuesday in a report.

The result was largely driven by higher prices for travel tours, which rose 26.1 per cent on an annual basis.

Analysis: November’s report doesn’t provide great revelations on where inflation is headed

On an emotional level, perhaps we can be thankful that we ended another stressful inflation year with a quiet report to send us into the holidays. But if you’re looking for any great revelations on where inflation is headed, and how quickly it will get there, the November CPI report won’t help much.

The headline inflation rate held steady at 3.1 per cent, and both of the Bank of Canada’s core inflation gauges were also unchanged, at 3.4 and 3.5 per cent. After two months of fairly significant declines, perhaps it’s modestly good news that they didn’t backslide.

On a month-to-month basis, overall CPI was up a thin 0.1 per cent, matching October’s pace – though, notably, on a seasonally adjusted basis, the increase was a hotter 0.3 per cent, after being flat in October. If you’re into three-month inflation readings – as many economists are these days, as a means of tracking the shorter-term trend – the seasonally adjusted CPI was up at an annualized pace of a tame 1.5 per cent over the past three months.

This report does nothing to change the Bank of Canada’s narrative on interest rates – it will still be looking for further evidence that core pressures are cooling. The monthly and three-month trends will be somewhat encouraging, as will the continued slowdown of food inflation; the sky-high pace of rent and mortgage inflation will remain a source of concern. The central bank will have one more inflation report – in mid-January – before its next interest rate decision, on Jan. 24. It would have to see a lot more than the numbers in this report to soften its position and drop its warning that further rate increases are still possible.

BP will pause all of its shipments through the Red Sea effective immediately due to a series of attacks on trade vessels by Houthi rebels in Yemen, the company announced Monday.

The oil giant is the latest major company to announce a pause in shipments, following in the footsteps of Maersk, which had a vessel targeted by anti-ship missiles last week. The Iran-backed Houthi rebels have sought to disrupt trade in the region in an effort to halt Israel’s war against Hamas.

“The safety and security of our people and those working on our behalf is BP’s priority,” BP said in a statement. “We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”

The U.S. Navy has sought to establish a coalition to protect trade through the Red Sea in recent weeks. USS Carney and USS Mason have already shot down multiple Houthi drones and deterred fast-attack vessels from approaching trading ships.

BP pauses oil tanker traffic through Red Sea amid Houthi rebel attacks (foxbusiness.com)

Monday December 18

Bank of Japan monetary policy meeting (through Tuesday)

(8:30 a.m. ET) Canadian construction investment for October.

(8:30 a.m. ET) Canada’s new housing price index for November. Estimate is a decline of 0.2 per cent from October and down 0.8 per cent year-over-year.

(10 a.m. ET) U.S. NAHB Housing Index for December.

Earnings include: Heico Corp.

—

Tuesday December 19

Euro zone CPI

(8:30 a.m. ET) Canadian CPI for November. The Street is forecasting a decline of 0.2 per cent from October but an increase of 2.8 per cent year-over-year.

(8:30 a.m. ET) Canada’s industrial product and raw materials price indexes for November. Estimates are month-over-month drops of 1.0 per cent and 3.5 per cent, respectively.

(8:30 a.m. ET) U.S. new housing starts for November. Consensus is an annualized rate decline of 0.9 per cent.

(8:30 a.m. ET) U.S. building permits for November. The Street is forecasting a 2.5-per-cent drop on an annualized basis.

Earnings include: Accenture PLC; FedEx Corp.

—

Wednesday December 20

Japan trade deficit

Euro zone consumer confidence

Germany PPI and consumer confidence

(8:30 a.m. ET) U.S. current account for Q3.

(10 a.m. ET) U.S. existing home sales for November. Consensus is an annualized rate decline of 0.4 per cent.

(10 a.m. ET) U.S. Conference Board consumer confidence index for December.

(1:30 p.m. ET) Bank of Canada’s Summary of Deliberations for Dec. 6 policy decision.

Earnings include: Asante Gold Corp.; BlackBerry Ltd.; Carnival Corp.; General Mills Inc.; Micron Technology Inc.

—

Thursday December 21

(8:30 a.m. ET) Canada’s Survey of Employment, Payrolls and Hours for October.

(8:30 a.m. ET) Canadian retail sales for October. The Street is projecting an increase of 0.8 per cent from September.

(8:30 a.m. ET) U.S. initial jobless claims for week of Dec. 16. Estimate is 210,000, up 8,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP for Q3. The Street expects an annualized rate increase of 5.2 per cent.

(8:30 a.m. ET) U.S. corporate profits for Q3.

(8:30 a.m. ET) U.S. Philadelphia Fed Index for December.

(10 a.m. ET) U.S. leading indicators for November.

Earnings include: CarMax Inc.; Cintas Corp.; Nike Inc.; Paychex Inc.

—

Friday December 22

Japan CPI

(8:30 a.m. ET) Canadian monthly real GDP for October. Consensus is a month-over-month increase of 0.1 per cent.

(8:30 a.m. ET) U.S. personal spending and income for November. The Street expects rises of 0.2 per cent and 0.4 per cent month-over-month, respectively.

(8:30 a.m. ET) U.S. durable goods and core orders for November. Consensus projections are increases of 2.2 per cent and 0.1 per cent from October, respectively.

(10 a.m. ET) U.S. new home sales for November. Consensus is an annualized rate rise of 1.5 per cent.

(10 a.m. ET) U.S. University of Michigan consumer sentiment index for December.