Dollar Flirts With Parity As Crude Nears Two-Year High - By Shaun Polczer, Calgary Herald
April 6, 2010
The Canadian dollar flirted with parity Monday after oil prices rose to the highest level in nearly two years.
Benchmark oil prices spiked more than two per cent, or $1.75 to settle at $86.62 US per barrel, the highest since October 2008. That sent the Canadian dollar higher, where it climbed as high as 99.9 cents to the greenback before settling at 99.72 cents, up about half a penny on the day.
The Toronto Stock Exchange's main index also reached an 18-month high, gaining 35.29 points to settle at 12,186.35.
Analysts said they expect the loonie to break through parity in the coming days based on a combination of improving fundamentals for the Canadian economy and positive trading momentum as investors diversify American and European holdings into what many see as a positive growth story.
"It's always been our belief the Canadian dollar will achieve parity. The only question has been the timing," said Gil Dawson, a partner with SBM Inc. market consultants in Calgary.
Likewise, oil prices could top $100, despite rising inventories in the world's largest consumer, based on the belief that the global economy is improving.
"Right now, that's what the market is betting on. If the market wants to believe demand is improving, prices will continue to go up," Dawson said.
Canada stands to benefit from economic recovery south of the border, which increases demand for the country's commodity-based exports. Adding to strength in Canada is lower government debt.
Supporting a positive view on economic recovery were U.S. data that showed the services sector grew in March at its fastest pace in nearly four years, while pending sales contracts for existing homes rose in February.
"The whole recovery story gaining steam has helped us," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. "The story is largely the same: the notion of the recovery taking firmer hold and the notion that commodity prices generally rising are certainly helpful for the Canadian dollar doing well."
In a research note released Monday, BMO Nesbitt Burns chief economist Sherry Cooper revised Canada's 2010 growth rate upwards to 3.1 per cent.
"The recent data . . . provide more evidence the economic recovery won't strike out."
Bruce Edgelow, who heads ATB Financial's energy department, said a strong Canadian dollar allows domestic companies to lock in lower prices for materials and contracts denominated in U.S. dollars, but it also limits the upside from higher oil prices.
"As we move to parity, those benefits have diminished," he said.
Noble Energy to buy Suncor assets in Colorado for $494M - by Shaun Polczer, Calgary Herald
January 6, 2010
CALGARY - Suncor Energy on Tuesday made good on plans to shed assets gained in its merger with Petro-Canada by selling its U.S. Rockies division to Houston-based Noble Energy for $494 million US.
The properties, in central Colorado, form the bulk of the company's American upstream operations and are producing about 10,000 barrels of oil equivalent (boe) per day after royalties, Noble said in a news release.
"Utilizing our technical and operational expertise, we now......
.......Martin Pelletier, managing director of Calgary-based TriVest Wealth Counsel, said it's too early to tell if the uptick in acquisition activity in the United States will spill over to Canada.
"Given a lot of what we've seen with Chesapeake and XTO, there's certainly been a rebound in interest in natural gas. The question is whether it will manifest itself in acquisition opportunities here in Canada," he said in an interview.
"Given some of the transactions we've seen, it appears some of the U.S. gas producers are taking a long-term bullish view on natural gas."
After rising close to $6 US per million British thermal units in recent weeks, natural gas futures fell hard in New York on Tuesday, where they lost about 25 cents to settle at $5.64.
With the winter heating season set to start winding down in February, Duncan Robertson with SBM Inc. consultants in Calgary said natural gas prices could be in for another rough year given the absence of fundamentals to support them.
SBM doesn't predict prices, but rather price trends that companies use to justify hedging or making asset deals. In that sense, Robertson said, he's telling clients to "keep their helmets on" and wait for the possibility of better deals later in the summer.
"It (acquisition activity) doesn't necessarily pick up at the bottom of the cycle, but the bottom of the cycle is definitely the best time to do it," he said. "We're bullish on gas in the future, but we can't see spring prices being particularly rosy at this time."
Suncor's shares gained 43 cents on the Toronto Stock Exchange Wednesday, where they closed at $38.73. Meanwhile, Noble shares jumped $1.90 US on the New York Stock Exchange to close at $75.12 US.
Calgary Economist Says Speculators Not To Blame For Volatility - Shaun Polczer, Calgary Herald
August 5, 2009
CALGARY - Speculators are not to blame for volatile oil prices, a Calgary-based economist told the U.S. Commodity Futures Trading Commission (CFTC) on Wednesday.
Philip Verleger, with the University of Calgary’s Haskayne Business School, told the committee in Washington that rules to limit speculative positions on oil futures contracts would have no impact in smoothing out wild price fluctuations that have seen crude oil hit $147 US a barrel before falling back below $33 and back above $70 in less than a year.
Instead, global oil prices have been influenced by a confluence of environmental regulations, currency changes and the decision by the U.S. administration to stop filling its Strategic Petroleum Reserve, he said in testimony before the commission.
“Speculation has had little to do with the price increase and changes in regulations will not eliminate price volatility,” he said. “Imposing position limits on passive investors—or even banning passive investment in oil futures—would not affect the spot price of oil, but would alter the incentive to hold inventories. If stocks decline, as history suggests they would, the market will become more volatile.”
Verleger, who previously advised U.S. presidents including Jimmy Carter on energy policies, joined the U of C in September. He raised eyebrows first by predicting that oil prices would rise above $100 and then again when he shifted gears and said they would fall back down last October.
In July, he once again made headlines after predicting that oil prices could fall below $20 by the end of the year.
“My views have often been controversial and my conclusions questioned when released or published. I am proud to note, though, that I have been repeatedly vindicated,” he told the commission.
The CFTC wrapped up three days of hearings into the role of speculators on so-called “finite supply” commodities such as oil and natural gas. The commission convened the hearings in early July after suggestions that speculators and hedge funds are to blame for artificially inflating oil prices, despite the lack of supply and demand fundamentals to back them up.
That has led to artificially high prices for products such as gasoline and diesel fuel that have, in turn, led to a slowdown in economic activity.
After hitting record highs last summer, oil prices have climbed back above $70, despite near-record storage levels in the Lower 48 states. The U.S. government’s Energy Information Administration reported on Wednesday that commercial crude inventories in the world’s largest consumer rose almost two million barrels last week.
Despite the bearish report, oil prices rose to the highest level in almost two months, adding 55 cents to close at $71.97.
Duncan Robertson, a principal with Calgary-based consultants SBM Inc., said energy market fundamentals began to separate from price starting around 2004 and reached an apex last summer, when both oil and natural gas hit record highs.
“Natural gas and crude oil were the only two commodities that had rising (relative) inventories and rising prices,” he said.
After a lull last fall that coincided with the onset of the recession, speculative money has returned in force in anticipation of an economic recovery. Although he prefers less government intervention in markets, Robertson said some action is needed to correct “obvious distortions” in energy markets.
“Something just doesn’t add up here. The bullish sentiment is choosing to ignore the fact that inventories are at record highs, hoping the end of the recession is nigh. This is true for both oil and natural gas.”
Structural Change In Demand Could Slow Recovery In Oil Prices
June 4, 2009
MEDIA RELEASE
10:00 ET, Thursday, June 4, 2009
CALGARY, Thursday, June 4/CNW/ - Oil demand will respond negatively to any recession or economic downturn. However, major price spikes can engender significant behavioural shifts that have a lasting effect on demand (structural change). Oil demand is a creature of GDP and evidence suggests that demand has been weakening over the past 4-5 years with rising price.
The end of the global recession does not signal that oil demand will return to pre-recessionary levels. Demand for crude oil could be 6-10MM BOPD lower and take 5-10 years to recover, post recession. This suggests that falling crude oil supply may be kept in check by lower levels of demand, placing a constraint on upward price movement, barring any return of massive speculative activity.
SBM Inc. is an independent Energy Advisory firm serving a variety of clients in the oil and gas industry. Additional information about SBM Inc. is available at: www.commoditycycle.com
Contact: Gil Dawson, Managing Partner, at (403) 205-3511
SBM Clients can log on to the client-only portion of the website to view the full overview in the Presentations/Conventional Oil section on the navigation bar
Natural gas faces two-year squeeze - Shaun Polczer, Calgary Herald
March 28, 2009
ConocoPhillips predicts prices will languish.
Natural gas producers could be in for another two years of low prices, the head of Conoco-Phillips' Canadian unit said Friday.
Speaking to reporters at the company's downtown head-quarters, Kevin Meyers said he doesn't see a meaningful recovery for natural gas--and expects the possibility of even lower prices--for at least 18 to 24 months.
Although costs for drilling and services have fallen as much as 20 per cent, gas prices have fallen farther and faster, shedding about three-quarters of their value since summer.
"The cost environment will adjust slowly," Meyers said. "But until the gas bubble comes down, you're going to see even lower prices." Meyers' comments came as gas futures in plunged 32 cents, or more than 10 per cent, in New York on Friday to $3.63 US per million British thermal units--down almost 20 per cent in one week and the lowest level since September 2002. By contrast, they were near $10 at this time last year.
Falling prices have prompted several producers to cut capital spending and shut in drilling rigs.
While Canadian drilling activity is being curtailed ahead of the annual spring thaw, Baker Hughes reported Friday that the U. S. rig count fell to the lowest level since 2003.
Joining other big producers like EnCana Corp. and Canadian Natural Resources, Conoco will slash 35 to 40 per cent from its natural gas bud-get this year, Meyers said.
The company expects to spend about $900 million in 2009 to develop its gas prospects, which include positions in the Montney and Horn River basins in northeast British Columbia.
Conoco is one of the country's largest natural gas players after successive acquisitions of Gulf Canada in 2002 and Burlington Resources in 2006. It produced a little more than one billion cubic feet (Bcf) a day in 2008, about seven per cent of Canadian output.
Analysts said prices could fall further as North American inventories approach record levels. The U. S. government's Energy Information Agency (EIA )on Thursday recorded a surprise three Bcf storage increase last week, marking an early start to the traditional injection season that starts in April.
As of March 20, the EIA said stocks were 372 Bcf higher than last year and 280 bcf above the five-year average of 1.37 trillion cubic feet (Tcf). At that rate, inventories will brush up against the theoretical [operational] 3.8 Tcf capacity well before summer [ends], says Gil Dawson, a commodities strategist with SBM Inc. in Calgary.
"We call that hitting the wall," he said.
With no place to store their gas, producers would be forced to shut in wells or sell it for almost nothing. SBM doesn't make price forecasts and instead identifies market trends -- and the trend is toward higher supplies and lower demand.
When the wreckage from the financial crisis and the recession clears, the North American gas market could be oversupplied by as much as five billion cubic feet a day, prompting Dawson to suggest gas prices have a lot further to fall.
"We don't see the bottom yet," he said.
But over the longer term, Conoco's Meyers said the company still thinks gas prices will be high enough to support two major pipelines from Alaska and the Mackenzie Delta.
"We still believe the long-term gas price will sustain an economic project," he said. "It's not about what you think gas prices will be in 2010, it's your view of what they look like in 2020 or 2030 that matters."
Drillers prepare for chill as natural gas plumbs lows - Shaun Polczer, Calgary Herald
August 26, 2008
Prices at lowest level since February
Natural gas prices sank to a new six-month low on Monday, raising the prospect for a third consecutive winter of discontent for drilling levels.
In New York, futures prices dipped as low at $7.61 US per million British thermal units -- their lowest since February -- before bouncing back to $7.83 to finish two cents lower on the day.
Alberta spot prices fared worse, closing at $6.58 Cdn on the day.
Without a catalyst in the form of extreme weather the leading indicators are all pointing downward, said Duncan Robertson, a managing partner with Calgary-based markets analysts SBM Inc.
"Our view is that I think they're going to head lower," he told the Herald. "It's going to take a significant bullish event for the market to take a U-turn. That said, it'll only take one honking hurricane lined up at the Gulf of Mexico to shift sentiment."
The drop came as forecasters said tropical depression Gustav could become a hurricane by the end of the week, although it was still unclear if the storm would cause production shutdowns in the Gulf of Mexico.
After increasing since the start of the year, natural gas prices are about half of their mid-summer highs recorded in July.
Martin King, a commodities analyst with FirstEnergy Capital Corp. in Calgary, said he doesn't expect to see a rally back above $9 before fall.
Last week's 88 billion cubic feet (bcf) storage injection was the biggest since 1996 and he's expecting near-record inventories before heating season starts later this fall. He's expecting another 80 bcf injection when storage numbers are released later this week.
"It's not that I'm turning bearish, it's just that there are fewer and fewer reasons to be bullish prior to winter."
Lower prices are giving producers fewer incentives to drill gas wells, which will only exacerbate some 700 million cubic feet per day of production declines since the start of the year.
According to the Nickles.com website, which publishes the Daily Oil Bulletin industry publication, Alberta's well count fell by 25 per cent in July compared to 2007. About two-thirds of all the wells drilled in the province target natural gas.
Combined with the provincial government's pending royalty changes, FirstEnergy's King agreed that drilling levels are likely to remain lacklustre for the foreseeable future.
"It's tough to find any reason to get excited about gas drilling in Alberta," he said.
The situation contrasts with the U.S., where natural gas production is rising at the fastest rate in almost half a century thanks to contributions from big unconventional gas plays such as the Barnett shale in Texas.
According to the U.S. government's Energy Information Administration (EIA), gas output in the Lower 48 states has climbed about nine per cent since the start of the year -- some four billion cubic feet a day -- at the fastest clip since 1959.
Peter Linder, president of DeltaOne Capital Partners, said the surprising jump in American production is one of the major contributors to lower gas prices.
But he doesn't think they'll fall much lower than the $7.50 mark. By contrast, Canadian gas prices averaged $6.12 for all of last year, bottoming out at $4.36.
"Higher American production is certainly a big factor in the gas price correction. I'm very surprised it's such a big correction, but I believe it's overdone. We are at or very near the bottom," he continued.
"All you need is one hurricane to enter the Gulf of Mexico and we're back above $10 to $12. Let's just let the hurricane season play out."
Saskenergy may raise costs - Joanne Paulson, Saskatchewan News Network; Canwest News Service
Tuesday, June 24, 2008
A surge in the price of natural gas may result in higher costs for SaskEnergy customers this winter.
At present, residential customers are paying $6.57 per gigajoule (GJ) for natural gas, which was reduced from $7.17 last fall. Since January, however, natural gas has steadily risen in price, hovering between $12 and $13 per GJ on the NYMEX exchange during June.
SaskEnergy tends to follow the AECO monthly index in Alberta, which trends lower than the NYMEX; but the AECO price was still $10.50 per GJ on June 10.............
.....Gil Dawson, a gas industry analyst with SBM Consultants who advises SaskEnergy, said prior to 2003, 85 per cent of the price of natural gas was related to inventories. Since then, the futures market -- which is almost exclusively concerned with trends -- has driven pricing, he said.
There is a new belief among speculators that oil and natural gas are interchangeable because they are both fuels, said Dawson. As long as speculators hold that view, natural gas will continue to follow the oil price.
It has been doing so since January, during the second-coldest U.S. winter in 10 years. As crude oil began its rise to its recent level of about $135 per barrel, natural gas suddenly started to follow and continued to do so after winter ended, said Dawson.
Oil is still being seen as a "one-way bet" because of restricted supply and high demand. Prices will continue to rise until demand eases off, said Dawson. The price of oil will stay high if the U.S. economy strengthens; if supply retracts; and if resources remain "locked" in countries such as Mexico, Iran and Venezuela due to government policies.
The price will go down if price spikes in oil lead to a reduction in demand or if the world enters a recession, said Dawson.
In the case of natural gas, mild weather also drives down the price.
Is time right for sale of Compton? - Shaun Polczer, Calgary Herald
June 14, 2008
Buy low, sell high - it's the mantra of the oilpatch. But against a backdrop of volatile commodity prices it's often easier said than done.
That's the dilemma facing Compton Petroleum Corp. after it finally decided to put itself up for sale this week after a protractred internal debate between its management and its board of directors.
Compton in February said it would "review" strategic alternatives but it wasn't until late Wednesday that it indicated any intention of actually doing so..........................
...........Bruce Edgelow, vice-president of energy for the Alberta Treasury Branch, says Compton would be a good fit for an "outside" company like TAQA that would be attracted to Compton's reserves.
Although Compton has "nice" assets, it also has relatively high debt levels that could preclude domestic pruchasers from offering top dollar.
"It's going to take a special purchaser to pick them up," Edgelow said. They've (TAQA) got enough cash in their till to come in and pay it off."
High commodity prices put potential buyers and sellers in a dilemma. Buyers, awash in cash, are often under pressure to do deals. If they don't, they become takeover targets, says Martin Pelletier, an analyst with Blackmont Capital in Calgary.
"All of this means the industry is going to be flush with cash, especially those that are unhedged, and they are going to be somewhat constrained as to how well they can redeploy that cash internally in their programs," he said.
"So what do you do with that extra cash? You can pay down debt, but debt levels are improving dramatically so far to date. So maybe they use that cash to make acquisitions."
Sellers try to exit the market at the top, but finding peak valuations is tricky - especially when commodity prices keep rising almost in defiance of the laws of gravity. Gerry Protti, Encana's vice-president of public relations, told the Global Petroleum conference last week oil could hit $200 if only because nobody expected it to go above $65 last year.
The situation is trickier with natural gas, which has arguably been even more volatile than oil ever since hurricanes Katrina and Rita slammed the Gulf coast two years ago.
"Look what happened to gas prices, they went from $15 to $4," said Gil Dawson, a managing partner with SBM consultants in Calgary. "On the natural gas side, there's a lot more risk."
Dawson doesn't predict prices; rather he synthesizes various bits of data to get a better idea of where the market is headed.
What's distorting physical markets is the entry of big financial players like hedge funds and speculators.
Although they agree the longer-term trend for both oil and gas is higher, they're afraid of what could happen in the shorter term. "I think the bottom for gas is still ahead of us," Dawson said. "I don't think it's a good time to buy."
Oil tops $120 on supply concerns - Shaun Polczer, Calgary Herald
Tuesday, May 6, 2008
Lower dollar, Nigeria unrest behind surge
Oil prices crashed through yet another psychological barrier Monday, briefly topping $120 US per barrel...................
Walter Zimmermann, who heads New York-based oil futures broker United Energy, said crude continues to rise almost in defiance of all the usual laws of supply and demand.
"Every technical indicator I've come to trust is overcooked, overbought, and overdone," he said.
Hedge funds and money managers continue to pour speculative dollars into commodities, pushing the prices of everything from oil and metals to new highs. Like oil, the U.S. copper contract on Monday hit a new lifetime high of $9.37 a kilogram.
"The speculative length is reaching historic proportions by any measure," Zimmermann said. "It's a momentum play."
Duncan Robertson, a managing partner with commodity consultants SBM Inc., said there's no limit to how high speculators could push prices in the short to medium term.
Although he agreed the bubble could eventually burst, all leading indicators point higher.
"The absolute fundamentals and price uncoupled a long time ago. The only thing that's going to get in the way of oil prices is a deep and prolonged U.S. recession. The sentiment today is extremely bullish."
Meanwhile, noted................
Natural Gas and Crude Oil Market Perspective - TheEnergyNews.Com
July 6, 2007
Natural gas and crude oil market perspective - video clip - TheEnergyNews.Com. Excerpt from an interview with Brett Harris, Calgary Bureau Chief, on Thursday July 5, 2007, Calgary, Alberta, Canada.
Junior Firms Battle For Investment - Shaun Polczer, Calgary Herald
June 20, 2007
Raising Capital Much Harder In Tough Times - For junior energy companies looking to drum up investment amid an uncertain outlook for oil and natural gas prices, it's all about making the right pitch.
That's why many smaller firms are facing a tougher audience of investment brokers as they take centre stage at the Canadian Association of Petroleum Producers' annual investment symposium.
Natural Gas Market Perspective - TheEnergyNews.Com
May 2, 2007
Natural gas market perspective - Wednesday, May 2 Late Edition, TheEnergyNews.Com [ video clip ]
Brutal Period Faces Gas Producers - S. Polczer, Calgary Herald
February 8, 2007
A double whammy of rising costs and falling prices threaten to undermine the competitiveness of Canada's natural gas industry, observers said Thursday.
Oil Prices Continue Climb After OPEC Reduction - S. Polczer, Calgary Herald
December 16, 2006
Oil prices rose for the second day after a decision by OPEC to cut production bolstered global energy markets.
Crude Slips To $54.86 Amid U.S. Slowdown Fears - S. Polczer, Calgary Herald
November 18, 2006
Oil fell below $55 US a barrel for the first time in 17 months on Friday after worries that the world's largest consumer is headed for an economic slowdown.
Gas Producers Dreaming Of A White, Cold Winter - S. Polczer, Calgary Herald
October 7, 2006
A harsh winter of discontent is shaping up for natural gas producers in light of continuing low prices, analysts say.
Oilpatch Shakes Off Fears Of A Summer Price Crash - P. Haavardsrud, Calgary Herald
August 12, 2006
Pervasive in the oilpatch only a month ago, bone-chilling visions of natural gas prices cratering by the end of summer are subsiding.
Market Heads Into Unkown - P. Haavardsrud, Calgary Herald
June 3, 2006
Natural gas markets are in a conundrum.
Not just run-of-the-mill commodity price uncertainty, mind you. Right here, right now, the best minds in the natural gas world are groping with a puzzler several years in the making.