Broader Market:
Crude prices searched for direction last week amid lingering speculation over the future of U.S. Federal Reserve’s massive bond buying program, known as quantitative easing (QE).
Oil gained more than 2% on Wednesday following the central bank’s decision to continue with the stimulus program. The announcement boosted investor sentiment, as it was widely expected that the Federal Reserve would trim $10-$15 billion from the $85 billion a month pace and wrap up the entire program by the middle of 2014.
Crude prices were further helped by a supportive Energy Information Administration (EIA) report that showed a large decline in inventories.
(Read our full coverage on the EIA release: Crude Prices Surge on Inventory, Fed)
However, the initial euphoria over the Fed’s ‘no Taper’ verdict Wednesday afternoon gave way to a more contemplative reaction during the later part of the week, as oil traders came to grip with less clarity on the underlying signs of improvement in the economy.
Meanwhile, diplomatic developments on the Syria front lowering the odds of U.S. military strikes and news about Libyan oil production resumption, also continued to put selling pressure on crude prices. By close of trade on Friday, West Texas Intermediate (WTI) oil was in the red and settled at $104.67 per barrel, losing 3.4% for the week.
On the other hand, the broad-based S&P 500 index, which shot to record highs on Wednesday, rose 1.3% for the week to 1,709.91. Though the index gave up much of the gains and ended the week on a two-day losing streak, it managed to be in the black on account of upbeat manufacturing and housing data.
The Sub-Sectors:
Integrated: Among the major integrated players, Italian energy behemoth Eni SpA (E) was the lead performer. The U.S.-listed shares of Eni gained 4.5% for the week, reaping the benefits from the recent start-up of its 17%-controlled giant Kashagan oil field n Kazakhstan after a long delay.
British giant BP plc’s (BP) stock price rose 1.2%, as investors cheered the 25-year sales agreements for the Caspian natural gas field of Shah Deniz. The developing consortium, of which BP is the operator, has closed the deals for the supply of just over 10 billion cubic meters a year of gas.
But overall, most ‘Big Oil’ is suffering from marginal or falling returns even as crude prices stay strong, reflecting their struggle to replace reserve base, as access to new energy resources becomes more difficult.
E&P: While all crude-focused stocks stand to benefit from high commodity prices, companies in the exploration and production (E&P) sector are the best placed, as they are able to extract more value for their products. The SIG Oil Exploration & Production Index traded up 1.0% during the week.
Among the week’s top gainers, Whiting Petroleum Corp. shares were up 5.4% on closure of its $260 million acquisition of producing assets and acreage in the Williston basin, while W&T Offshore Inc. gained 4.7% following a discovery at a prospect in the deepwater Gulf of Mexico.
U.S.energy firm Apache Corp. (APA) added 1.2% to its stock price, as it continued offloading oil, gas acreage in an effort to boost valuation and lower debt. The company agreed to sell certain properties in Canada in two separate transactions for a combined total of $112 million, weeks after it offloaded 33% of its ‘risky’ Egypt business for $3.1 billion.
Oilfield Services: The oil services group – represented by the Philadelphia Oil Services Sector Index – was up 0.7% through the week. Above $100 a barrel oil prices and rising capital spending have positioned the industry for better times ahead.
Houston-based Oil States International Inc. (OIS) was the most impressive weekly performer in the group, gaining 4.4% after speculation that the company’s proposed spin-off of its accommodations unit may occur ahead of the scheduled summer 2014 timeframe. Weatherford International Ltd. (WFT) was up 2.2%, recouping some of the losses it notched the previous week following the abrupt departure of its CFO.
But Halliburton Co. (HAL) shares retreated 0.7% after a federal judge accepted a guilty plea associated with the 2010 Gulf of Mexico’s Macondo well disaster that calls for the company to shell out a fine of $200,000 for destroying evidence.
Refining & Marketing: This has been one sector that has underperformed the rest of the energy industry. With refiners being buyers of crude – whose price has seen a steep climb recently – their profitability are being squeezed due to a rise in the input cost and lower crack spreads.
Almost all major downstream stocks except Phillips 66 traded in the red, with the hardest hit being Marathon Petroleum Corp., which shed 5.0% over the week. Valero Energy Corp. (VLO), the largest domestic independent refiner, was in the news again, thanks to the announcement that its midstream subsidiary – Valero Energy Partners L.P. – filed a document with regulators for an initial public offering of its common units to raise around $345 million.
Natural Gas:
Natural gas spot prices rallied to $3.72 per million Btu (MMBtu) on Thursday, Sep 19 – the highest in two months – following the U.S. Energy Department's weekly inventory release that showed a smaller-than-expected rise in the commodity’s supplies.
On a further bullish note, the storage build was also lower than the benchmark 5-year average gain for the week. However, natural gas ended slightly lower Friday (at $3.69 per MMBtu) on profit taking and mild weather forecasts.
The U.S. Energy Department's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states rose by 46 billion cubic feet (Bcf) for the week ended Sep 13, below the guided range (of 55–59 Bcf gain). Moreover, the increase – the twenty-third injection of 2013 – was lower than both last year’s build of 61 Bcf and the 5-year (2008–2012) average addition of 74 Bcf for the reported week.
(Read our full coverage on the EIA release: Natural Gas Retreats from 2-Month High)
Performance Chart:
|
Ticker |
Last Week’s Performance |
6 month performance |
|
XOM |
+0.29% |
-1.43% |
|
E |
+4.46% |
+0.69% |
|
BP |
+1.24% |
+0.74% |
|
APA |
+1.20% |
+17.07% |
|
HAL |
-0.70% |
+22.04% |
|
WFT |
+2.21% |
+31.81% |
|
VLO |
-1.74% |
-15.73% |
|
MPC |
-4.98% |
-30.16% |
This Week’s Outlook:
This week, the direction and magnitude of energy price movement will likely be influenced by renewed speculation about the future of the Fed’s QE program and a better sense over Chairman Ben Bernanke’s eventual successor.
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