Author: Consultant

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.

Published: 12/15/2023 5:18 PM ET | 

The Canadian market ended sharply lower on Friday as stocks fell on sustained selling pressure, after Bank of Canada Governor Tiff Macklem said the bank is unlikely to cut interest rate anytime before the second half of 2024.

Macklem said in a speech that the central bank’s policymakers will consider cutting interest rates when inflation is “clearly” on a path to the 2% target, but added that it’s still “too early.”

Meanwhile, hopes for near-term interest rate cuts in the U.S. faded a bit after New York Federal Reserve President John Williams said the Fed is not “really talking about rate cuts right now” and is focused on whether monetary policy is sufficiently restrictive to ensure inflation comes back down to 2%.

Selling in the Canadian market was so widespread that all the sectoral indexes ended in negative territory. Communications, energy, real estate and consumer discretionary shares were among the major losers. Utilties, materials and industrials stocks also ended notably lower.

The benchmark S&P/TSX Composite Index ended lower by 249.65 points or 1.2% at 20,529.15, about 30 points off the session’s low. For the week, the index gained nearly 1%.

Canadian Apartment Properties (CAR.UN.TO), Cogeco Communications (CCA.TO), Molson Coors Canada Inc (TPX.B.TO), goeasy (GSY.TO), Canadian Natural Resources (CNQ.TO) and Magna International (MG.TO) ended lower by 3.5 to 5.5%.

Dollarama Inc (DOL.TO), West Fraser Timber (WFG.TO), Cargojet (CJT.TO), WSP Global (WSP.TO), George Weston (WN.TO) and Fairfax Financial Holdings (FFH.TO) settled lower by 1.5 to 3%.

Hut 8 Corp (HUT.TO) soared 8.7%. CCL Industries (CCL.A.TO) climbed 4.2% and Gildan Activewear (GIL.TO) gained 4%.

Enghouse Systems (ENGH.TO) advanced nearly 4%. Richelieu Hardware (RCH.TO) and Docebo Inc (DCBO.TO) ended higher by 2.2% and 1.9%, respectively.

On the economic front, data from the Canada Mortgage and Housing Corporation showed housing starts in Canada slipped by 22% over a month earlier to 212,624 units in November, the lowest reading in six months.

Data from Statistics Canada showed wholesale sales in Canada declined 0.5% from a month earlier in October, following a revised 0.6% drop in the previous month.

Bank of Canada Governor Tiff Macklem said that inflation could be “getting close to” the bank’s target by the end of next year, and laid out conditions under which the bank might begin considering rate cuts in the coming quarters.

“The 2 per cent inflation target is now in sight,” Mr. Macklem said in the prepared text of his end-of-year speech in Toronto. “And while we’re not there yet, the conditions increasingly appear to be in place to get us there. The economy is no longer in excess demand, and underlying inflationary pressures are easing in much of the economy.”

He said the bank’s governing council has not begun discussing interest rate cuts, and warned that further declines in inflation would likely be gradual. “I expect governing council will continue to debate whether monetary policy is restrictive enough and how long it needs to remain restrictive,” he said.

But he added that the bank could start easing monetary policy once it’s confident that inflation is “on a sustained downward track.”

“We don’t need to wait until inflation is all the way back to the 2-per-cent target to consider easing policy, but it does need to be clearly headed to 2 per cent,” he said.

While Mr. Macklem and his team continue to say they could raise interest rates further, most Bay Street economists and bond traders think that interest rates have peaked. Interest rate swaps markets, which capture market expectations about monetary policy, put the odds of a rate cut in March at about 60 per cent, and they are fully pricing in a quarter-point rate cut by April, according to Refinitiv data.

The central bank has raised interest rates 10 times since March 2022, bringing its policy rate to 5 per cent, the highest level since the early 2000s. It has held rates steady since July, delivering its third stand-pat decision earlier this month.

Mr. Macklem said that 2024 will be a “year of transition.”

“By the time I give my year-end speech next year, I expect the economy will be growing, business hiring plans will be expanding, and inflation will be getting close to the 2 per cent target,” he said.

The annual rate of Consumer Price Index inflation was 3.1 per cent in October, down from a four-decade high of 8.1 per cent in summer of 2022. The bank’s latest forecast, from October, shows inflation staying around 3.5 per cent until the middle of 2024 then easing to around 2.5 per cent in the second half of the year. The bank will publish new forecasts in January.

Mr. Macklem’s speech bookended a pivotal week for central banks. On Wednesday, the U.S. Federal Reserve held interest rates steady for the third consecutive decision, but suggested that further interest rate hikes are essentially off the table and rate cuts are coming in the new year. This message was more dovish than expected, prompting a surge in stock and bond prices, and increased bets on rate cuts from the Fed in the first half of the year.

The European Central Bank and Bank of England followed up with holds on Thursday, although both central banks avoided the kind of tone shift seen at the Fed. Both said they needed more evidence of easing inflation before talking about rate cuts.

So far, the decline in inflation has not been accompanied by a recession in Canada or the United States that many analysts feared at the start of the year. But high interest rates, which make it more expensive for businesses and households to borrow money and service their debts, are weighing on economic activity.

Canada’s gross domestic product contracted in the third quarter, consumer spending and business investment is down, and the rate of unemployment has risen to 5.8 per cent from 5 per cent at the start of the year. Many homeowners with mortgages have been hit by big jumps in their monthly payments, and more will see sizable increases in the coming quarters when their mortgages reset.

Mr. Macklem warned of more pain to come.

“With the cost of living still increasing too quickly, and with growth subdued, the next two to three quarters will be difficult for many,” he said. “Consumers will continue to hold back on spending. Businesses will see weak demand and employment will grow more slowly than the labour force, which means the unemployment rate will likely increase further.”

When it comes to inflation, Mr. Macklem said the bank is seeing prices stabilize across a broad range of goods and services. But there are pockets where prices continue to rise quickly, including food and shelter. He said he expects food inflation to decline in the coming months, but shelter inflation to remain a more persistent problem.

“Increases in interest rates are moderating the demand for housing and bringing the housing market into better balance, but the structural undersupply of housing means that inflationary pressures on shelter prices remain elevated,” he said.

Mr. Macklem used his speech to outline several changes to central bank communications and forecasting. Going forward, Mr. Macklem and senior deputy governor Carolyn Rogers will hold a press conference after each of its eight-times-a-year rate decisions, rather than only after the four decisions each year that are accompanied by the bank’s quarterly Monetary Policy Report. Rate announcements will also be made at 9:45 a.m. ET rather than 10 a.m. ET in a bid to improve market functioning.

Mr. Macklem said that the bank is also working to improve its forecasting and analysis tools, putting more emphasis on modelling the supply side of the economy and introducing additional models to help with risk management.

The bank’s next interest rate decision is on Jan. 24

• Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%.
• Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month.
• Initial claims for unemployment insurance totaled a seasonally adjusted 202,000, lower than the 220,000 estimate.

https://www.cnbc.com/2023/12/14/retail-sales-rose-0point3percent-in-november-vs-expectations-for-a-decline.html

Cenovus Energy CVE-T +1.83%increase said on Thursday it expects higher production from its U.S. refineries in 2024 as the Canadian company’s two refineries restarted operating at full capacity.

The company had been grappling with production snags following a deadly fire at its refinery in Toledo, Ohio last year and an explosion at the refinery in Superior, Wisconsin in 2018.

Cenovus forecast downstream throughput for 2024 between 630,000 and 670,000 barrels per day (bpd), compared with 580,000 bpd to 610,000 bpd expected this year.

The company’s U.S.-listed shares rose 1.6 per cent before the bell.

Cenovus also expects higher operating costs in 2024 due to maintenance and repair activities.

The Calgary, Alberta-based company forecast expenses between $4.5-billion and $5-billion in 2024, higher than its estimated 2023 costs of $4-billion to $4.5-billion.

“We will remain focused on reducing costs and continued capital discipline,” Cenovus CEO Jon McKenzie said.

Global oil prices have cooled compared with last year, but still remain at a level when companies can drill profitably.

Cenovus also said it plans to expand production at its Foster Creek, Christina Lake and Sunrise oil sands projects.

The company forecast total upstream production for 2024 between 770,000 and 810,000 barrels of oil equivalent per day (boepd), compared with 775,000 boepd to 795,000 boepd expected this year.