Crude prices pushed below the major psychological threshold of
$95 per barrel on Friday.
In fact, oil prices finished down for the fourth consecutive
week amid lingering concerns that the global growth is still in
low gear, translating into reduced demand through 2014. Coupled
with ever-increasing supplies on the back of modern technological
advancements, and political stability in producing countries,
crude fundamentals appear bleak. Investors are also apprehensive
that this month's 16-day U.S. government shutdown has eroded
demand in the worlds biggest oil consumer.
Sentiments were further dampened by a bearish Energy
Information Administration (EIA) report that showed a big jump in
As per the EIA's weekly 'Petroleum Status Report,' crude
inventories climbed by 4.1 million barrels for the week ending
Oct 25, 2013 to 383.87 million barrels. A steep rise in Gulf
Coast supplies on the back of lower refinery utilization rates
led to the massive stockpile build-up with the U.S. even as
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 2.2 million barrels, the third
straight weekly gain.
Weighed down by these factors, by close of trade on Friday,
West Texas Intermediate (WTI) oil was firmly in the red and
settled at $94.61 per barrel, losing 2.9% for the week.
On the other hand, the broad-based S&P 500 index edged up
0.1% and finished the week at 1,761.64, two days after reaching a
lifetime intraday high of 1,775.22. Traders digested an
exceptionally strong U.S. manufacturing data, weighing it against
the probability of an earlier-than-expected tapering of Federal
Reserve's stimulus program.
A drop in refining profitability has hurt the major integrated
players, ultimately dragging down their third quarter earnings.
In particular, Anglo-Dutch supermajor Royal Dutch Shell plc and
U.S. energy behemoth
) were the worst affected, down 2.9% and 2.1% for the week,
respectively. Refinery overcapacity and weak fuel demand squeezed
their downstream profitability, weighing on the prices the
operators can charge.
As it is, 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
Bucking the trend was British giant
), whose U.S.-listed shares gained 6.6%. Notwithstanding the
refining struggle, BP not only beat earnings forecasts, but also
announced a share repurchase program, a payout hike, and an
Exxon Mobil Corp.
) - the world's largest publicly traded oil firm - was another
solid performer, adding 2.1% to its share price last week. The
company came out with a quarterly beat, backed by higher liquid
and natural gas prices.
While all crude-focused stocks stand to lose from falling
commodity prices, companies in the exploration and production
(E&P) sector are the worst placed, as they are able to
extract less value for their products. Last week, the SIG Oil
Exploration & Production Index traded down 2.1%.
Top decliners include Cabot Oil & Gas Corp., whose shares
shed 5.3% during the week. Much of this seems to be tied to the
natural gas producer's failure to match its earlier blowout
quarters. Though the company actually beat earnings estimates, it
was not enough to appease investors, who expected a revenue
growth of around 50%, more than the actual jump of 47%.
New York-based oil and natural gas producer
) was another laggard. Shares tumbled 2.7% last week, as the
company came out with lower-than-expected third-quarter profit,
beset by lower production resulting from various asset sales.
On the other end of the spectrum was domestic explorer LINN
Energy LLC. Shares jumped 14.8% following a solid quarter with
higher volumes and lower expenses that produced around $2 million
of excess cash.
The oil services group - represented by the Philadelphia Oil
Services Sector Index - edged up 0.2% through the week.
One of the top gainers was onshore contract driller Nabors
Industries Ltd., which jumped 5.9% over the period despite a firm
reason to justify the increase. Oceaneering International Inc.
was another notable gainer after announcing record quarterly net
income on the back of impressive demand for its subsea services
On the other hand, shares of offshore driller
) pulled back 3.9% through the week after the initial euphoria
died down over its reinstatement into the S&P 500 index after
a five-year absence. The Switzerland-based firm's stock jumped
7.9% the week before on hope that the S&P 500 index funds
will immediately be forced to buy the rig owner.
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 have been squeezed due to a rise in
the input cost and lower crack spreads.
With the earnings season kicking off last week, these
headwinds were reflected in disappointing results for sector
Marathon Petroleum Corp.
). Both downstream operators' earnings were dragged down by low
gasoline and diesel margins.
Valero Energy Corp.
) - the largest domestic independent refiner - was able to buck
the negative earnings surprise trend. Shares of the company
rallied, up almost 4% for the week, after it reported third
quarter results well above expectations on the strength of higher
throughput volumes that overshadowed weaker refining margins and
On a brighter note, over the past fortnight or so, 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.
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
rose by 38 billion cubic feet (Bcf) for the week ended Oct 25,
above the guided range (of 33-37 Bcf gain). However, the increase
- the twenty-ninth injection of 2013 - was lower than both last
year's build of 66 Bcf and the 5-year (2008-2012) average
addition of 57 Bcf for the reported week.
While bullish speculators are betting on the upcoming winter
heating season (Nov through Mar) to spur the commodity's demand
for heating, mild weather forecasts - for most of this month -
have proved to be the dampener. As a result, natural gas spot
prices ended Friday at $3.51 per million Btu (MMBtu), down 4.9%
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 await a number of
top-tier economic reports that will shed further light on how
well the economy is doing in the fourth quarter. Of particular
significance is Friday's non-farm payroll report for Oct and
Thursday's preliminary data on third quarter U.S. GDP.
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