Crude prices remained flat last week.
A better-than-anticipated Oct jobs report seemed to ease
concerns that last month's 16-day U.S. government shutdown has
eroded demand in the worlds biggest oil consumer. This was aided
by positive data about China's all-important trade sector,
allaying some of the fears raised by the unusually weak export
numbers in September.
In more positive news, the first read on Q3 GDP came in better
than expected, with the economy growing at +2.8% pace instead of
the +2% consensus estimate and the final +2.5% growth pace in Q2.
However, at the same time, the recent run of positive economic
data, ranging from the ISM surveys to Q3 GDP and October non-farm
payrolls, has put the December Taper back on the market's agenda.
Lower Euro-zone growth forecasts for 2014 also weighed on crude
Sentiments were further dampened by the Energy Information
Administration (EIA) report that showed another jump in
inventories, which remains above the upper limit of the average
for this time of the year.
As per the EIA's weekly 'Petroleum Status Report,' crude
inventories climbed by 1.6 million barrels for the week ending
Nov 25, 2013 to 385.45 million barrels. A drop in refinery
utilization rates and steady production led to the stockpile
build-up with the U.S. even as imports fell.
What's more, storage at the Cushing terminal in Oklahoma, the
key delivery hub for U.S. crude futures traded on the New York
Mercantile Exchange, was also up 991,000 barrels, the fourth
straight weekly gain.
As a result of these factors, by close of trade on Friday,
West Texas Intermediate (WTI) oil was little changed and settled
at $94.60 per barrel, essentially flat for the week.
On the other hand, the broad-based S&P 500 index edged up
0.5% and finished the week at 1,770.61, a day after registering
its worst performance in ten weeks. Traders were buoyed by the
unanticipated boost in U.S. jobs growth in Oct, taking it as a
sign of strength in the world's largest economy. Even the weak
consumer sentiment numbers could not deter the bulls.
Major integrated players were mixed, with the top gainer being
Exxon Mobil Corp.
). The world's largest publicly traded oil firm added 4.0% to its
share price last week. Exxon Mobil continues to build on its
strong momentum from the previous week, when it came out with a
quarterly beat, backed by higher liquid and natural gas prices.
Investors also cheered Exxon Mobil's move to restart work in
Madagascar, four years after the company announced force majeure
following a military coup in the island nation.
San Ramon, CA-headquartered energy behemoth
) was another solid performer. Shares climbed 2.7% during the
week after the company signed a deal worth up to $10 billion with
Ukraine to explore the country's shale gas deposits, which is
trying to reduce its dependence on Russian supplies. Moreover,
the supermajor's court case in Manhattan - to dispute a $19
billion environmental verdict it faces in Ecuador over pollution
- took an interesting turn, as the judge who issued the ruling
seemed to have little knowledge about his own order.
Overall, however, most of the 'Big Oil' is suffering from
marginal or falling returns irrespective of the crude price
movement, reflecting their struggle to replace reserve base and
maintain production growth, as access to new energy resources
becomes more difficult.
While all crude-focused stocks stand to gain/lose from
rising/falling commodity prices, companies in the exploration and
production (E&P) sector are the most affected, as they are
able to extract more/less value for their products. Last week,
the SIG Oil Exploration & Production Index traded down
Top decliners include WPX Energy Inc., which plunged 14.7%
after coming out with disappointing third quarter results.
Plagued by lower natural gas prices, the Tulsa, OK-based energy
explorer's net loss almost doubled, while being much wider than
anticipated. Operating performance was also impacted by a decline
in total production volumes, compounded by an increase in
operating costs. Moreover, the company's volume guidance was on
the weaker side, as it continues to struggle with infrastructure
issues in its Marcellus Shale operations.
Anadarko Petroleum Corp.
) shed 3.6% during the week. Much of this seems to be tied to the
American oil and gas producer's failure to match third quarter
earnings estimates. Though the company actually announced a rise
in profits and also beat revenue projections, it was not enough
to appease investors, who expected better growth, considering its
premium valuation. A natural gas-weighted production profile -
whose economics is floundering - also played its part in bringing
down the stock.
The oil services group - represented by the Philadelphia Oil
Services Sector Index - was up 1.5% through the week.
Leading the pack was offshore driller
), which jumped 12.4% through the week after it delivered a
standout quarter. On Wednesday, the Switzerland-based firm
reported larger-than-expected earnings and revenues for the three
month ended Sep 30 on the back of improved rig utilization and
Two of the best performers last week were oilfield
Weatherford International Ltd.
), shooting ahead of their peers with additions of 4.3% and 3.9%
to their respective stock prices. Weatherford moved higher after
it beat profit view and inked deals with the U.S. government to
settle longstanding corruption charges.
Moreover, the Geneva-based drilling equipment manufacturer
named a new CFO, which boosted investor sentiment and removed
uncertainty regarding the company's future leadership. On the
other hand, Halliburton on Wednesday said its board approved a
quarterly dividend of 15 cents per share, up 2.5 cents, or 20%,
from the prior quarter.
Refining & Marketing:
This has been one sector that has underperformed the rest of the
energy industry for the bulk of this year. With refiners being
buyers of oil - whose price saw a steep climb recently - their
third quarter profitability had been squeezed due to a rise in
the input cost and lower crack spreads.
These headwinds were reflected in disappointing results for
sector component HollyFrontier Corp. The downstream operator's
earnings - dragged down by collapsing refining margins - were way
However, shares of
) - one the largest domestic independent refiners - rallied, up
almost 3.8% for the week, after it reported third quarter
revenues well above expectations on the strength of higher
throughput volumes and improved performance by the retail segment
that overshadowed weaker refining margins and steep costs.
On a brighter note, over the past fortnight or so, crude
prices have pulled back and spreads have showed signs of
strengthening yet again, pointing to the likelihood that the
difficult operating environment could be over sooner than what
many investors think.
Investors continue to focus on temperature patterns to
understand the fuel's economic dynamics. As it is, natural gas
fundamentals look uninspiring with supplies remaining ample in
the face of underwhelming demand. In fact, it is expected to take
many years for the commodity's demand to match supply in the face
of newer projects.
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
rose by 35 billion cubic feet (Bcf) for the week ended Nov 1,
within the guided range (of 34-38 Bcf gain). The increase - the
thirtieth injection of 2013 - exceeded last year's build of 27
Bcf but was marginally lower than the 5-year (2008-2012) average
addition of 36 Bcf for the reported week.
The bullish speculators are betting on the upcoming winter
heating season (Nov through Mar) to spur the commodity's demand
for heating. Chilly weather forecasts - in East U.S. over the
next ten days or so - have proved to be the catalyst. As a
result, natural gas spot prices ended Friday at $3.56 per million
Btu (MMBtu), up 3.2% over the week.
Last Week's Performance
6 month performance
This Week's Outlook
Apart from the usual suspects - the U.S. government data on
oil and natural gas - market participants will be closely
watching the coming Janet Yellen confirmation hearings to get a
sense of the new Fed Chair's thinking on the bond buying
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