Last week, energy stocks mirrored the broader equity markets'
fears about the long-anticipated government shutdown. In fact,
the Washington drama over budget negotiations and debt-ceiling
talks continued to hog the limelight from everything else, even
as the jobs and consumer spending data broadly came in positive.
Moreover, the initial euphoria over the Fed's 'no Taper'
verdict have given way to a more contemplative reaction, as oil
traders come 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, together with news about
Libyan oil production resumption and signs of thawing tensions
between the U.S. and Iran, also continued to put selling pressure
on crude prices.
Sentiments were further dampened by a bearish Energy
Information Administration (EIA) report that showed a surprise
increase in inventories.
(Read our full coverage on the EIA release:
Crude Tumbles on Bearish Supply Report
By close of trade on Friday, West Texas Intermediate (WTI) oil
was firmly in the red and settled at $102.87 per barrel, losing
1.8% for the week.
The broad-based S&P 500 index, which shot to record highs
during the previous week, lost 1.1% to close at 1,691.75 on Sep
27, the first weekly decline since Aug.
Among the major integrated players, French behemoth
) was the lead performer following a positive investor
presentation on Monday. The U.S.-listed shares of Total gained
4.0% for the week after it outlined plans to deliver production
and free cash flow growth. Europe's third-biggest oil company
sees overall 2017 production of about 3 million oil-equivalent
barrels per day (up 31% from current levels), while continuing to
restructure its downstream operations and control capital
expenditures. Later in the week, Total announced the final
investment decision for the first development phase of Bolivia's
Incahuasi gas and condensate field.
) stock price rose 1.1%, as investors cheered a major oil
discovery off Canada's east coast that is estimated to contain up
to 600 million barrels of recoverable oil, the company's largest
outside the home country.
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.
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. Notwithstanding the overall
bearish industry trend, the SIG Oil Exploration & Production
Index traded edged up 0.7% during the week.
Shares of domestic energy explorer
Cabot Oil and Gas
) jumped after it disclosed initial production growth guidance of
up to 50% for 2014. The company also reaffirmed this year's
volume growth target of 44-54%. Post announcement, shares rose to
an intraday high of $37.48 on Sep 26, before settling at $37.12,
up 4.4% from the previous day close.
The oil services group - represented by the Philadelphia Oil
Services Sector Index - was down 0.4% through the week. But with
oil prices still north of $100 a barrel and rising capital
spending, the industry is positioned for better times ahead.
It was a happening week for the equipment suppliers with two
National Oilwell Varco Inc.
) - announcing spin-offs. National Oilwell Varco is considering a
plan to separate its distribution segment from its remaining
businesses, thereby creating two independent, publicly traded
companies that are better positioned to concentrate on their
respective strengths. On the other hand, Noble, an offshore
drilling contractor, has decided to split half of its fleet into
another company to concentrate on its high-specification assets
operating in deeper waters.
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
However, with oil going down last week, almost all major
downstream stocks except Valero Energy Corp. traded in the black,
with the top gainer being HollyFrontier Corp., which advanced
3.0% over the week. Among the newsmakers,
Marathon Petroleum Corp.
) board announced plans to buy back an additional $2 billion of
its common stock, while
) wrapped up the sale of its Kapolei refinery and a number of
retail gas stations in Hawaii.
Natural gas spot prices tumbled to around $3.50 per million
Btu (MMBtu) on Thursday, Sep 26, following the U.S. Energy
Department's weekly inventory release that showed a
larger-than-expected rise in the commodity's supplies. On a
further bearish note, the storage build was also higher than the
benchmark 5-year average gain for the week.
Mild weather forecasts - that could slow demand even more -
worsened the situation. However, natural gas ended slightly
higher Friday (at $3.59 per MMBtu), as investors came back to
accumulate the commodity at low prices.
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
rose by 87 billion cubic feet (Bcf) for the week ended Sep 20,
above the guided range (of 74-78 Bcf gain). The increase - the
twenty-fourth injection of 2013 - also exceeded both last year's
build of 79 Bcf and the 5-year (2008-2012) average addition of 75
Bcf for the reported week.
(Read our full coverage on the EIA release:
Natural Gas Stifled by Big Supply Gain
Last Week's Performance
6 month performance
This Week's Outlook:
This week, investors will be closely tracking a host of
economic data on deck for release that will have a direct bearing
on the future of Federal Reserve's massive bond buying program.
Of particular significance is Friday's non-farm payroll report
for Sep that may contain indications regarding the economic
recovery and whether it is strong enough for the central bank to
trim the $85 billion a month stimulus.
Traders have voiced concerns that Fed's shift away from the
bond buying policy may lead to dollar-denominated oil prices to
increase in local-currency terms in emerging markets, thus
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