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Is The Oil Price Slide Finally Over

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Despite oil’s most recent slump to a 15-month low last week, analysts and investment banks continue to expect higher prices at the end of this year as demand is set to pick up with the driving season, and supply is bound to tighten with the OPEC+ cuts in the second half of 2023.

Concerns about demand in a possible recession and renewed fears of further bank collapses sent oil prices to their lowest level since December 2021 in the middle of last week. In the week to May 5, oil ended its third consecutive week of weekly declines—the longest weekly losing streak since November last year.   

Oil’s Latest Crash

Data from exchanges showed that traders and speculators fled the oil market in the week to May 2 due to concerns about the economy and the banking sector. Open interest in the U.S. benchmark, WTI Crude, is now at a three-year low. Lower open interest and liquidity in the market is bound to make price swings even more extreme, according to analysts.

Driven by heavy selling in energy, bullish bets on the major commodities futures plunged by one-third in the latest reporting week to the lowest since June 2020, Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted.

“During an eight week period the crude oil market has seen a banking crisis, an Opec cut driving a spike and subsequent focus on gap closing, and fresh demand concerns,” Hansen commented.

The Fed rate hike last week and intensified concerns about a looming recession shifted the focus of the market participants – again – to the macroeconomic picture and away from fundamentals.

But according to analysts, fundamentals point to a tighter oil market in the second half of the year, which, barring a major recession, would drive oil prices higher from the current levels in the low to mid-$70s per barrel.   Related: China Is Coming Out Of The Shadows To Defend Its Oil Interests

Banks Expect Higher Prices Through Year-End

Despite last week’s price plunge, Goldman Sachs this weekend reiterated its call for Brent Crude reaching $95 in December 2023 and hitting the $100 per barrel mark next year.

“Our forecast remains that Brent rises to $95 per barrel by December and $100 per barrel by April 2024 as we expect large deficits in H2,” analysts at Goldman Sachs wrote in a note carried by CNBC.

Concerns about near-term demand and a large oversupply look “overblown,” according to the investment bank, especially in light of the new OPEC+ production cuts beginning this month. 

The OPEC+ group surprised the oil market in early April by announcing additional cuts to production between May and December 2023 to ensure the “stability of the market.”

OPEC+ ministers are meeting again on June 4, and reports have it that the meeting will be held in person. The last time OPEC+ ministers met in person in Vienna was in October 2022, when the alliance announced the initial oil production cuts from November 2022 through December 2023.

Analysts are not ruling out another OPEC+ action to support prices, although the alliance has always denied it is aiming at a particular price level.

Yet, the latest estimate from the International Monetary Fund (IMF) pegs the breakeven oil price for OPEC’s de facto leader and the world’s top crude oil exporter, Saudi Arabia, at $80.90 per barrel. That’s the price of oil the Kingdom will need to balance its budget this year, suggesting that the Saudis – and its Gulf allies – may not be too happy with prices staying in the low to mid-$70s for too long.

As oil was heading to a third week of weekly losses, ING strategists Warren Patterson and Ewa Manthey said on Friday that “Sentiment clearly remains negative, which suggests that there could be some further downside in the near term, although, we would expect the market to find good support near the March lows of around US$70/bbl.”

The bank continues to expect a deficit in the market in the second half of the year.

“While sentiment is negative at the moment, the market is in oversold territory and our balance sheet still shows that the market will be in deficit over 2H23, which should drive prices higher,” ING’s strategists said.

In the absence of material deterioration in the macroeconomic picture and as long as Wall Street believes that the Fed will cut rates later this year, oil prices could stabilize, according to Ed Moya, senior market analyst at OANDA.

“The oil market was extremely oversold and it will probably continue to stabilize as long as Wall Street is still confident the Fed will cut rates later this year,” Moya said on Monday.

“Oil prices won’t be able to rise that much from here given all the growth demand fears, but expectations are high for OPEC+ to try to keep prices above the $70 a barrel level.”

WTI Crude is expected to tick up from current levels in the low $70s and “form a range above the mid-$70s to the mid-$80s if the macro backdrop doesn’t completely deteriorate,” Moya added.

“There are a lot of risks on the table, but optimism is growing for debt ceiling drama and banking jitters to remain as short-term problems,” the analyst noted.

By Tsvetana Paraskova 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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