Rise of a refiner
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.
Canada GDP benefits from tailwinds in February as trade tensions dissipate
Confirming its willingness to exempt Canada, Mexico and the EU from aluminum and steel tariffs until June 1, 2018, the Trump administration is giving a break to its key commercial partners, as it is expected to start hard talks with Chinese negotiators as early as Thursday. In that context, the Canadian economy is doing well, supported by contained y/y core inflation at +1.90% and accelerating industrial production activities in March. As given by recent progression in gross domestic product (GDP) data given at +0.40% m/m and +3% y/y in February, Canadian economic growth is expected to continue in that direction due to continued rebound in mining, oil and gas extraction activities in April. Bank of Canada GDP growth expectations of 2% for 2018 might probably be a bit too conservative given current upturn.
As Fed FOMC rate decision is taking place today at 20:00 GMT+2, with rate unchanged at +1.75% and continued tightening in June 13, 2018 meeting (most likely scenario), we’re expecting the loonie to stay under pressure. Currently trading at 1.2821, the USD/CAD is expected to increase along the 1.2835 range in the short-term.
