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Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Last monthOPEC and its non-OPEC allies, known as OPEC+, agreed to extend their deep production cuts through July in an effort to rebalance oversupplied markets in the face of pandemic-hit demand. The cuts were supposed to take ~10% off the markets with July’s cut clocking in at 9.6 million bpd.

But now there are signs that the pendulum could have swung a bit too far, with the markets beginning to experience shortages of key crude grades.

There are growing signs that the markets are undersupplied with Urals and Arab Light thanks to continuing deep production cuts as well as a rebound in demand by key customers such as China and Northern Asia.

The price of Urals, Russia’s flagship grade, has flipped to record premiums to the Brent crude benchmark, briefly changing hands at $2.40 a barrel above Dated Brent last week to reflect the undersupply. 

That marks a sharp turnaround compared to a discount of more than $4.50 a barrel recorded in April. Urals for delivery to Rotterdam, the main oil refinery hub in northwest Europe, were selling at a premium of $1.90 by the end of June, matching a prior record high. This, in effect, means that Rotterdam Urals were selling at ~$45 a barrel, a far cry from the $15 a barrel they commanded in early April.

Oil markets in backwardation

A similar pattern is being observed for other sour crude grades, which are commanding premium prices even with global oil demand still 10% below normal levels.

Under ordinary circumstances, medium-sour crude that Saudi Arabia and its OPEC partners pump is usually cheaper than light sweet crude with a lower sulfur content. However, OPEC, which mostly pumps medium-sour crude, has dramatically cut output to its lowest level since 1991. Further, Iran and Venezuela, which also supply medium and heavy sour crude, have both seen production severely curtailed due to U.S. sanctions as well as a lack of investment.

Consequently, Saudi Aramco has been able to raise the price of the crude it sells to refiners for three months in a row. And now for the first time ever, Aramco is selling its most dense crude, known as Arab Heavy, at the same price as its flagship Arab Light, a clear indication of strong demand for medium-heavy sour grades. Under normal circumstances, Arab Heavy sells at a discount of $2-to-$6/barrel to Arab Light. Related: Big Oil’s Investment Risk Is Spiking

To make matters even more interesting, medium-heavy sour crude for immediate delivery is commanding premiums to forward contracts, a situation known as backwardation. That’s a 180-degree turn from the situation just two and a half months ago when oil markets were in deep contango, meaning forward contracts were selling at a big premium to near-term contracts.

Production cuts working

CME data shows that oil futures in general are beginning to flirt with backwardation— a positive sign for oil markets. Back in May, the markets were in super-contango with futures for June delivery trading at just half the value of January 2021 futures; the situation is far less dramatic with futures for August delivery trading at $40.90/barrel compared with $41.54 for January 2021 futures.

These data sets are encouraging signs that OPEC+ members could largely be sticking to their pledges. Last month, Saudi Arabia and Russia warned members of the cartel that there was no room for noncompliance whatsoever after May compliance clocked in at just 74% of agreed cuts. Notably, Iraq cut just 38% of its promised cuts while Nigeria fared even worse, cutting a mere 19% of its commitments. That said, the importance of dramatic cuts by U.S. producers cannot also be overstated. In May, Reuters reported that North American producers were on course to cut 1.7 million barrels per day by the end of June with the U.S. Energy Secretary Dan Brouillette estimating that U.S. production would drop by 2 to 3 million bpd by the end of the year.

But more importantly, the latest oil price trends are confirmation that, indeed, the production cuts are working as intended by helping to rebalance the markets.

The coronavirus pandemic has caused global oil demand to fall off a cliff, with U.S. consumption falling to levels last seen nearly four decades ago. With global oil production at record highs, supply quickly overwhelmed demand leading to an acute storage crunch that triggered the historic oil price crash into negative territory. 

Source: Quartz

Oil prices have recovered ever since but remain a long way off the $60/bbl level they were trading at last December. The current oil price of ~$40/bbl could be around the breakeven that Russia needs to balance its books but far from satisfactory for Saudi Arabia, which needs ~80/bbl or majority of U.S. shale producers who need $50-$55 per barrel to break even. 

With the current level of cuts set to lapse at the end of July, it’s going to be interesting to see whether “OPEC+ is until death do us part,” as Prince Abdulaziz famously quipped a month ago.

By Alex Kimani for Oilprice.com

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

The Canadian Press. All rights reserved.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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