Rise of a refinerBy Peter Rosenstreich
In energy: when prices move, things happen. After months of nothing, the recent, sudden rise in crude prices had made a mega-merger happen. On 30 April Marathon Petroleum agreed to acquire US independent Andeavor to create the largest US refiner by capacity and one of the top five globally. The deal has two critical points. First, combining Andeavor’s plays in the Permian and Bakken basins with its solid footprint in Marcellus Shale will make it a direct winner in shale growth. Second, its significant refining capabilities around the Gulf of Mexico give it direct access to Mexico’s newly liberalized gasoline and diesel markets.
The refining sector is reborn. Lower oil prices forced US operators, once considered capital traps, to maximize efficiency. Now the business is most profitable. Energy in 2017 was one of the poorest performing global sectors, yet 2018 is seeing price hikes. Crude oil is close to undersupplied, as inventory dropped and demand increased. Improved supply/demand equilibrium converts to higher profits.
Marathon will acquire all of Andeavor’s shares, valued at US$23.3 billion. Andeavor’s shareholders can choose stock or cash. This deal has built a leading national, integrated energy company that will operate 16 US refineries from Gulf to the Midwest.
Loonie under pressureBy Vincent-Frédéric Mivelaz
When the US Federal Reserve’s decision comes later today at 13.00 Washington time, we expect an unchanged rate of 1.75%, continued tightening in June and further pressure on the Canadian dollar. Currently at 1.2821, the USD/CAD is expected to increase along the 1.2835 range in the short-term.
The US Trump administration is giving a break to its key commercial partners Canada, Mexico and the EU on aluminium and steel tariffs. The Canadian economy is doing well, supported by annual core inflation at 1.90% and accelerating industrial production in March. GDP rose an annualised 3% in February, and a continued rebound in mining and oil and gas should make April strong. The Bank of Canada’s growth expectations of 2% for 2018 might even be a bit low.