Author: Consultant

Canada’s energy industry is reacting with dismay to U.S. President Joe Biden’s move to pause approvals of new liquefied natural gas export terminals in that country.

The Canadian Association of Petroleum Producers said it sees LNG as a lower-emission source of secure energy that can help countries get off coal.

“LNG facilities on the U.S. Gulf Coast are also offering Canadian producers an opportunity to export their natural gas globally,” said CAPP president and CEO Lisa Baiton in an e-mailed statement on Friday.

“Given the highly integrated nature of the North American energy market, CAPP is disappointed in the White House decision.”

Canadian pipeline giant Enbridge Inc. also expressed its displeasure with the decision. The company currently supplies natural gas to five operating LNG export facilities on the U.S. Gulf Coast and has previously said it is interested in expanding its export strategy through further acquisitions in the region.

“Our immediate view is any delay in the development of U.S. liquefied natural gas is a loss for the U.S., our Allies, for U.S. jobs and for efforts to cut emissions around the world,” said Enbridge spokeswoman Gina Sutherland in an e-mail.

Mr. Biden’s election-year decision comes as gas shipments from the United States to Europe and Asia have soared since Russia’s invasion of Ukraine. From having zero LNG export facilities a decade ago, the United States has grown to become the world’s largest LNG exporter, averaging 20.4 billion cubic feet a day in the first half of 2023.

But a White House statement on Friday cited climate risk as the reason for pausing new LNG approvals, adding the current process the Energy Department uses to evaluate LNG projects doesn’t adequately account for the effect of greenhouse gas emissions.

Canada does not yet have its own LNG export capacity. This country’s first LNG export facility, being built near Kitimat, B.C., is not expected to become operational until later this year.

But Heather Exner-Pirot, special adviser to the Business Council of Canada, said Friday’s decision by the U.S. President is deeply concerning for the Canadian energy sector.

“Your first instinct might be, maybe this is good for Canadian LNG, you know, because our main competitor is having its wings clipped,” she said.

“But Canadian natural gas companies are so integrated with the North American market that there isn’t really a separation. If it’s bad for American energy, it’s bad for Canadian natural gas producers and mid-stream companies.”

The pause is not expected to immediately affect U.S. supplies to Europe or Asia, since seven LNG terminals are currently in operation, with several more expected to come online in the next few years.

But Ms. Exner-Pirot said she believes Europe, in particular, is likely very concerned with Friday’s announcement as it had come to depend on the United States as a replacement source for Russian energy.

She added Canadian natural gas companies should also be concerned about the way this decision effectively paints their product as an environmental “bogeyman.”

“There’s obviously a corner of the environmental activism world in the United States that doesn’t like natural gas, doesn’t like any fossil fuel, doesn’t see it as a bridge to replace coal. And so those groups are very pleased today,” she said.

LNG proponents have long said that replacing the use of coal globally with cleaner-burning natural gas will help the world in its battle against climate change.

On Friday, LNG Canada’s vice-president of corporate relations Teresa Waddington said greenhouse gas emissions from the Kitimat operation are expected to be lower than any facility of a similar size operating in the world today.

“Canada’s lower-carbon LNG will provide security of supply for global markets that can rely on our country’s natural gas reserves to advance their economies and reduce global GHG emissions,” Ms. Waddington said in an e-mail.

But critics say LNG is problematic for the climate in many ways.

“If you only consider emissions at the burner tip, then yes, natural gas is about half the emissions of coal,” said David Hughes, president of Global Sustainability Research Inc.

“But if you consider the full life-cycle emissions of LNG, you’ve got the emissions from transporting it from B.C. to Asia, you’ve got emissions from the liquefaction process, you’ve got emissions from drilling and flaring and methane leakage across the entire value chain.”

Mr. Hughes said building additional LNG capacity now essentially “locks in” greenhouse gas emissions for the long-term and will make it impossible for countries to meet their climate commitments in the future.

“It’s already a horror show from an environmental point of view because all of these existing projects were built with 30- or 40-year lifespans,” he said.

Julia Levin, associate director with Environmental Defence, said countries agreed at the recent UN climate summit in Dubai on the need to transition away from fossil fuels. She said increasing LNG capacity does not fit with that vision.

“At COP28, countries sent a clear message that we’re at the end of the fossil-fuel era,” Ms. Levin said.

“President Biden’s decision further drives the point home. Canada should follow.”

• The core personal consumption expenditures price index for December, an important gauge for the Federal Reserve, increased 0.2% on the month and was up 2.9% on a yearly basis.
• Including volatile food and energy costs, headline inflation also rose 0.2% for the month and held steady at 2.6% annually.
• Consumer spending increased 0.7%, stronger than the 0.5% estimate. Personal income growth edged lower to 0.3%, in line with the forecast.

https://www.cnbc.com/2024/01/26/pce-inflation-december-2023-.html

The S&P 500 closed at an all-time high for a fifth straight session on Thursday after data showing strong U.S. economic growth in the fourth quarter boosted sentiment, while Tesla tumbled following a disappointing sales forecast. The TSX notched a 20-month high, aided by a rally in the energy sector.

The gains extended a rally in which the S&P 500 recently hit record highs for the first time in two years, lifted by optimism about the economy and lower interest rates, as well as bets on artificial intelligence.

Tesla slumped 12% to its lowest since May 2023 after CEO Elon Musk warned sales growth would slow this year despite price cuts that have hurt its margins. That left the car maker’s stock market value at about US$580 billion, below Eli Lilly and just above Broadcom.

The U.S. economy grew faster than expected in the December quarter amid strong consumer spending, confounding predictions of a recession after the Federal Reserve aggressively raised interest rates, with full-year growth of 2.5%.

Yet inflation pressures subsided, with the personal consumption expenditures (PCE) price index increasing just 1.7% over the past three months from 2.6% in the third quarter.

Bond yields, which move inversely to their price, slid. The yield on U.S. two-year Treasuries, which reflects interest rate expectations, fell 7.4 basis points to 4.304%. The yield on benchmark 10-year notes fell 5.6 basis points to 4.122%. Canadian bond yields were relatively steady.

“GDP was a good surprise for the market in that there wasn’t problematic inflation, and the consumer continues to spend money,” said Rob Haworth, senior investment strategy director at U.S. Bank Asset Management Group. “And so there more support for the narrative that company earnings and sales growth should be better as we press forward.”

The report confounded some economists, however, as strong growth and slowing inflation are at odds.

“My view is this combination of data is very, very unusual and it’s not likely to be sustained,” said Tom Simons, money market economist at Jefferies in New York.

“Either inflation is going to pick back up again or growth has to slow. I just don’t understand how the economy can continue with this perfect, ideal, immaculate disinflation story.”

Real gross domestic income has not kept pace with GDP growth, suggesting the economy may not be as strong as it appears, said Joe Lavorgna, chief U.S. economist in New York at SMBC Group.

Also, massive government spending is keeping demand stronger than it otherwise would be, he said in a note.

Expectations that the Fed will cut interest rates in March rose to 47.4% from 41.2% on Wednesday, according to CME Group’s FedWatch Tool.

Earlier, the European Central Bank kept rates unchanged at a record-high 4%, as expected. Bond yields plunged as investors bet the ECB has both the growth and inflation outlook wrong and will deliver five rate cuts starting in early spring.

Other data Thursday showed U.S. initial jobless claims for the week ended Jan. 20 rose to 214,000, higher than the estimated 200,000 figure.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 75.76 points, or 0.4%, at 21,101.54, its highest closing level since May 2022.

The energy sector rose 1.6% as U.S. crude oil futures settled 3% higher at $77.36 a barrel.

The materials group, which includes precious and base metals miners and fertilizer companies, also gained ground, adding 0.6%, as the price of gold rose.

The TSX utilities group was up 1.3%, supported by a decline in long-term borrowing costs. The Canadian 10-year yield eased 2.1 basis points to 3.480%.

Quarterly results next week from Apple, Microsoft , Amazon, Alphabet and Meta Platforms will give investors a glimpse of whether those heavyweight company’s high valuations are warranted following surges in their stocks since Wall Street bottomed out in 2022.

The S&P 500 climbed 0.53% to end the session at 4,894.16 points.

The Nasdaq gained 0.18% to 15,510.50 points, while Dow Jones Industrial Average rose 0.64% to 38,049.13 points.

Other electric car makers fell following Tesla’s quarterly report late on Wednesday. Rivian Automotive lost 2.2% and Lucid Group dropped 6.7%.

Humana sank 11.7% after it became the latest health insurer to forecast disappointing annual profits, dragging the S&P 500 healthcare sector index down 0.2%.

UnitedHealth and Cigna dropped 3.9% and 2%, respectively.

IBM jumped 9.5% after forecasting full-year revenue growth above estimates, while Comcast added 3.4% after the media giant topped quarterly revenue estimates.

American Airlines soared 10.3% after the carrier forecast largely upbeat annual profits.

Of the S&P 500 companies that have reported earnings so far, 82% have surpassed expectations, LSEG data showed. That compares to a long-term average beat rate of 67%.

Boeing fell 5.7% after the U.S. Federal Aviation Administration barred the troubled planemaker from expanding production of its 737 MAX narrowbody planes.

Advancing issues outnumbered falling ones within the S&P 500 by a 4.0-to-one ratio. The S&P 500 posted 50 new highs and two new lows; the Nasdaq recorded 97 new highs and 119 new lows. Volume on U.S. exchanges was 11.5 billion shares traded, about average for the previous 20 sessions.

Reuters, Globe staff

• GDP, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023. Wall Street had been looking for a 2% gain.
• The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
• A strong pace of consumer spending helped drive the expansion, as did government spending.

https://www.cnbc.com/2024/01/25/gdp-q4-2023-the-us-economy-grew-at-a-3point3percent-pace-in-the-fourth-quarter.html

Oil rose slightly on Wednesday, with Brent trading near $80 a barrel, as a Chinese economic stimulus package and geopolitical tensions were countered by concerns over tepid demand and a stronger dollar.

The front-month March contract for Brent crude was up 40 cents to $79.95 a barrel at 1410 GMT. U.S. West Texas Intermediate crude was up 57 cents to $74.94 a barrel.

China’s central bank will cut the amount of cash that banks must hold as reserves from Feb. 5, governor Pan Gongsheng said on Wednesday, the first such cut for the year as policymakers extend efforts to shore up a fragile economic recovery.

Meanwhile, U.S. crude stocks fell by 6.67 million barrels in the week ended Jan. 19, according to market sources citing American Petroleum Institute figures on Tuesday. Gasoline inventories, however, increased by 7.2 million barrels, stoking concerns over fuel demand in the world’s top oil consumer.

The Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, will release the data later on Wednesday.

A stronger U.S. dollar also weighed on oil prices as demand from buyers in other currencies ebbs when they have to pay more for dollar-denominated oil.

The dollar index hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient U.S. economy.

Geopolitical tensions, which have led to a massive displacement in global trade, remained in focus.

“Trade disruptions in the Red Sea add only a marginal premium to oil prices and no physical supplies have been lost so far, but regional escalation cannot be ruled out,” HSBC Global Research said in a note.

A coalition of 24 nations led by the U.S. and UK conducted new strikes against Houthi fighters in Yemen on Tuesday. The strikes were aimed at stopping the Houthis’ attacks on global trade, Britain said in a joint statement.

The U.S. said Iran-aligned Houthis have mounted 26 attacks since late November on commercial shipping in the Red Sea, a shipping lane used by about 12 per cent of global oil trade before the attacks.

The U.S. also carried out strikes against Iran-linked militia in Iraq on Tuesday, following an attack on an Iraqi air base that wounded U.S. forces.

Bank of Canada holds rate steady, says discussions have shifted away from further hikes

The Bank of Canada held its policy interest rate steady for the fourth consecutive time, and said that monetary policy discussions have shifted from whether to raise borrowing costs further to how long the bank should wait before lowering them as the Canadian economy has shifted into a state of “excess supply.”

The widely-anticipated decision keeps the bank’s policy rate at 5 per cent, a two-decade high reached last July.

While the bank remained on hold on Wednesday, there was a notable pivot in its language, which downplayed the odds of further rate hikes and opened the door to the possible rate cuts.

“With overall demand in the economy no longer running ahead of supply, Governing Council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level,” Bank of Canada governor Tiff Macklem said in a statement published alongside the rate announcement.

He did not rule out further rate hikes altogether, but suggested they were unlikely if inflation and economic activity develops in line with the bank’s projection.

– Mark Rendell

Stocks rose Monday as investors built on the previous session’s historic move to record highs.

The Dow Jones Industrial Average climbed 150 points, or 0.5%, to a new record level. The S&P 500 added 0.2%, also reaching a fresh all-time high. The Nasdaq Composite advanced 0.3%.

Macy’s rose more than 1% after rejecting a $5.8 billion proposal to take the retailer private. SolarEdge jumped more than 2% on the back of the company announcing it would lay off 16% of its workforce.

Archer-Daniels-Midland dropped more than 22% after issuing weak earnings guidance and placing CFO Vikram Luthar on leave amid an investigation tied to accounting practices. B Riley Financial slipped nearly 6% after Bloomberg reported that regulators are investigating deals with a client connected to securities fraud.

Monday’s gains come after the broad S&P 500 on Friday broke above its intraday and closing record highs set in January 2022. The move signaled that Wall Street is indeed in a bull run that began in October 2022 after stocks plunged earlier that year.

“It’s almost like a fear of missing out,” said Brian Price, head of investment management at Commonwealth Financial. “We had a little bit of volatility to start the year as investors maybe rebalance portfolios and look to realize some gains. But now, it just seems like we’re resuming the trend that was clearly in place” in the fourth quarter.

https://www.cnbc.com/2024/01/21/stock-market-today-live-updates.html

Oil prices rose on Monday as traders weighed the impact of wars in the Middle East and Ukraine on oil supply against economic headwinds dampening global oil demand.

Brent crude rose 90 cents to $79.46 a barrel by 1450 GMT.

The front-month U.S. West Texas Intermediate crude futures contract for February delivery was up $1.10 at $74.42 a barrel in tepid trade, with the contract set to expire on Monday. The more active March WTI contract was up 91 cents at $74.16.

“While oil prices have firmed up a little, it is strange that they have not risen further, given the rising geopolitical tensions in the Middle East,” said Gary Dugan, chief investment officer at Dalma Capital.

“Part of the reason why oil prices have remained in check could be the market’s anticipation that global growth is slowing.

There are no signs of respite in Israel’s offensive in Gaza while attacks by Iran-aligned Houthis on commercial vessels in the Red Sea have continued despite retaliatory measures from the United States.

Meanwhile, Russian energy company Novatek has been forced to suspend some operations at its Baltic Sea fuel export terminal because of a fire, it said on Sunday, which Ukrainian media said was caused by a drone attack. The fire has been extinguished, local authorities said on Monday.

Oil fundamentals could continue to drag on prices, according to IG analyst Tony Sycamore.

Oil production is higher while the growth outlook in China and Europe is mixed and GDP data this week is expected to show growth of the U.S. economy has slowed considerably, he said.

“Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the back foot,” said Tamas Varga of oil broker PVM.

The latest demand growth forecasts by the U.S. Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day, though all three organisations expect demand growth to slow in 2025.

Separately, production at Libya’s Sharara oilfield resumed on Sunday, state oil company NOC said, after protesters ended a sit-in that had halted output since early January.

Sunoco SUN-N said on Monday it would acquire fuels storage and pipeline operator NuStar Energy NS-N in a deal valued at about $7.3-billion including debt, as it tries to diversify its core business beyond distribution of motor fuels.

The equity portion of the deal comes up to $2.99-billion, and NuStar’s shareholders stand to receive 0.400 of a Sunoco share for each NuStar unit they hold, valuing Sunoco’s shares at $23.78. That represents a premium of 31.9 per cent to NuStar’s last closing price.

The deal, which has been approved by the boards of both the companies, will give Sunoco access to NuStar’s transportation and storage facilities, including a portfolio of about 9,500 miles of pipeline and 63 terminals.

The companies have flagged cost savings of $150-million by the third year following closing of the deal, expected in the second quarter of 2024.

Shares of Sunoco were down 5 per cent in premarket trading, while shares of NuStar were up 23 per cent.

Earlier this month, Sunoco agreed to sell 204 convenience stores in West Texas, New Mexico and Oklahoma to 7-Eleven Inc for about $1-billion. It said it would also acquire liquid fuels terminals in Amsterdam in the Netherlands and Bantry Bay in Ireland from Zenith Energy.

Sunoco, a Dallas-based company, is an affiliate of U.S. pipeline operator Energy Transfer, which is controlled by billionaire Kelcy Warren.