Earnings season is showing many positive signs for the oil industry. The earnings quarter vs quarter show improvements and expenses are down year over year. This good news could help with the explorers over the near term but weakening demand for oil globally could keep the companies in a declining pattern for longer. Fracturing in OPEC's willingness to cut more production and a fracking resurgence in the US should keep a lid on oil prices, and subsequently share prices of oil and gas explorers.
Not all of this should be seen as bad news. A longer term outlook is starting to show the deterioration of production capacity as a result of the cuts in capital expenditures that took place at the end of last year. Oil inventories are decreasing in the US which will eventually result in more volatility in the price of oil during any pick up in demand. The fracking story is also not the same as in the past. While record wells are being dug, there are issues with infrastructure to start pulling oil. Completion and Production revenues from Halliburton's recent earnings release shows the profitability of renting equipment that is in short supply.
In short the outlook for the macro space is not favoring a surge in oil prices in the near future, but oil service companies keeping growth reigned in through less Cap Ex will be able to weather a slowdown easier than in the past and provide a great entry point for a longer term outlook.
With congressmen in the US splitting from the party lines in another vote for the Healthcare bill, republicans are having a hard time remaining united, and the markets are starting to notice. The dollar dropped on the news that the republicans ability to pass the new healthcare bill is waning and the dollar index is suffering as a result.
The inability of the US government to pass bills or show signs of cooperation have the world taking notice and looking for better regions and currencies to place their money. The talk by the Fed and their concerns on inflation has contrasted other central bank's hawkish outlooks and started the dollar decline. We could now see an acceleration as the much anticipates (and baked in) prospects of fiscal policy padding the withdrawal of monetary policy looks less likely.
Today the Bank of Canada (BOC) is likely to raise its benchmark interest rates by 25 basis points. Many are looking at the language as the true determinate of the direction of the Canadian stock markets, bonds, and the dollar (CAD). The current rate hike has been priced in but markets are going to look for a conciliatory tone in the report that will determine how likely further hikes are to be. Many of these worried are around the high debt levels in the Canadian economy, some estimates around 170% of GDP. The central bank is likely to say further hikes are 'data dependent' and not have as aggressive of a tone as some fear. The board should look to see if the slowing economy is accelerated by this first hike before looking to adjust policy further. In terms of seeing how this will affect the private consumers one has to just watch the performance of the large banks.
Many of the banks have outrun the overall market in the anticipation of greater profitability in a rising rate environment. That performance can quickly change if we start to see loan delinquencies and a slowdown in lending as a result of these higher rates. A quarter basis point increase should not be the tipping point of the entire lending economy in Canada but how the bank react to the longer term prospects of more increases, especially in their management of in house prime rates on mortgages, will be the deciding factor.