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Has The Oil Market Finally Turned A Corner? | OilPrice.com

Alex Kimani

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

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August has historically been brutal for oil and gas stocks. According to data from Schaeffer Research, the energy sector has consistently underperformed in August, with returns coming in negative in 8 of the last ten years. 

Oil field services companies have been among the biggest culprits, with Baker Hughes (NYSE: BKR), Schlumberger NV (NYSE: SLB) and Haliburton Co (NYSE: HAL) featuring among the ten worst-performing stocks in all sectors with average returns of -7.45%,-6.31% and -6.10%, respectively. 

Meanwhile, one of the top players in the Eagle Ford shale play, Apache Corp. (NYSE: APA), rounds off the list of shame with an average return of -6.17% over the past 10 Augusts.

However, this year is looking to buck that trend.

The energy sector’s favorite benchmark, the Energy Select Sector Fund (XLE), is up nearly 10% since the beginning of the month and almost +12% over the past 30 days. Apache leads the rallying pack, gaining 22% after posting decent Q2 results during its latest earnings call and announcing a significant find at its offshore Suriname prospect.

The latest leg up by oil stocks has come after the Energy Information Administration (EIA) reported two consecutive weeks of huge crude draws. This, coupled with growing hopes for another stimulus package, have raised hopes that the large supply overhang that has been crimping oil markets could finally be in the rearview mirror. Related: Iranian Oil Exports Much Higher Than Official Data Suggests

Source: Yahoo Finance

Source: CNN Money

Big Crude Draws

Last week, the EIA reported that crude oil inventories for the week ending July 31 had contracted by 7.4 million barrels with the American Petroleum Institute reporting an even bigger draw of 8.587 million barrels. Analysts were expecting a much smaller inventory decline of 3.267 million barrels for the timeframe.

The surprise decline followed yet another week of a larger-than-expected draw. The previous week, the EIA had announced a 10.6 million barrel decline in crude inventories, marking the largest drop in more than six months.

As expected, oil prices have reacted positively to these developments: WTI is trading at $42.36/barrel, a level it last touched in early March while Brent crude is changing hands at a five-month high of $45.20. Related: Equinor Shakeup Hastens To Move Away From Oil

The larger crude draws are an encouraging sign that recovery in oil demand is on the right track.

But before the bulls can start doing a victory lap, there are a couple of worrying signs and data points that suggest that this market is still a long way from being out of the woods.

Weak Refining Margins

Despite the large crude draws, a buildup in distillate inventories as well as refining margins that remain a long way off their pre-crash levels imply that the oil outlook remains shaky at best.

The EIA reported a 700,000-barrel build in gasoline inventories for the week ending July 24, a reversal from the 1.8-million-barrel draw a week earlier. The energy watchdog also reported an inventory increase of half a million barrels in distillate fuels, compared with a 1.1-million-barrel inventory build for the previous week.

However, the biggest red flag remains persistently weak refining margins.

On Tuesday, the CME Group quoted gasoline crack spreads at just $9.57/barrel, or about half their February average. Crack spreads represent the economics of refining crude into its various constituents and tend to be a good barometer of real-time fuel demand. Despite a gradual re-opening of economies, the global air industry–one of the biggest consumers of oil–remains very weak. 

The EIA reported that although U.S. passenger airline traffic doubled in June from May’s levels, it was still 80% below last year’s corresponding period. Reuters also reported that fuel demand by Asia’s economic powerhouse, India, had hit reverse gear, slipping 21% Y/Y in July and 13% compared to a year ago after staging an encouraging recovery. India has been among the countries hardest hit by the pandemic, with nearly 2 million infections and resurging infections that have prompted new lockdowns and fears that other parts of the world may soon follow.

Then there’s the big question of whether OPEC relaxed its production cuts too soon.

Starting this month, OPEC trimmed its historic production curbs by about 2 million barrels/day to 7.7 mb/d. But as BNP Paribas’ head of commodity strategy Harry Tchilingurian has told Bloomberg, there are genuine concerns that rising OPEC+ production could coincide with an uneven recovery in oil demand as India has just shown us.

It’s indeed a precarious situation with OPEC+ risking falling victim to its own success.

But then again, uncertainty is the new normal in this market, making calling the bottom of one of the worst oil crises in modern history a fool’s errand.

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)

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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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