Bullish economic reports throughout the week, combined with a
supply drop strengthened crude prices, while natural gas rocketed
past the $4-level on frigid weather forecasts and positive
Crude prices increased last week on encouraging U.S. economic
reports that fuelled hopes for robust demand in the worlds
biggest oil consumer.
In particular, the Institute of Supply Management (ISM)
manufacturing index data for the month of Nov showed that the
sector expanded at the fastest rate in 2013, with 15 of the 18
industries reporting growth. A similar measure of activity in the
Euro-zone also reflected growth, buoying energy demand
Oil traders often refer to manufacturing statistics as
yardsticks to gauge the future fuel demand growth.
Later in the week, revised GDP numbers for Q3 came out, as did
new jobless claims - both reports were impressively good for the
U.S. economy. To complete a week of upbeat reports, the Bureau of
Labor Statistics (BLS) came out with its monthly nonfarm payroll
report on Friday, and results were better than expected.
Sentiments were further brightened by the Energy Information
Administration (EIA) report that showed a big fall in
inventories, the first in eleven weeks.
As per the EIA's weekly 'Petroleum Status Report,' crude
inventories dropped by a larger-than-expected 5.59 million
barrels for the week ending Nov 29 to 385.83 million barrels. An
uptick in refinery utilization rates led to the stockpile
drawdown with the U.S. 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 down
marginally, following seven straight weekly gains.
As a result of these factors, by close of trade on Friday,
West Texas Intermediate (WTI) oil was firmly in the black and
settled at $97.65 per barrel, gaining 5.5% for the
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.
Despite these issues, natural gas rallied to a six-month high
last week on the back of a larger-than-expected decrease in
natural gas supplies and forecasts of freezing cold weather
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
fell by 162 billion cubic feet (Bcf) for the week ended Nov 29,
higher than the guided range (of 139-143 Bcf drawdown). Moreover,
the decrease was considerably higher than both last year's
withdrawal of 62 Bcf and the 5-year (2008-2012) average reduction
of 41 Bcf for the reported week.
Chilly weather forecasts - in the key U.S. consuming regions
over the next few days - are likely to further spur the
commodity's demand for heating.
Influenced by these factors, natural gas spot prices ended
Friday at $4.11 per million Btu (MMBtu), up 6.2% over the
Energy Week That Was:
The week's energy coverage was dominated by the following
Shell to Abandon GTL Venture
U.S.-listed shares of Europe's largest oil company
Royal Dutch Shell plc
) gained almost 3% on Friday after it pulled out of a program to
construct a gas-to-liquids (GTL) plant in Louisiana. The company,
which announced the decision on Thursday, is planning to stop all
activities related to the development.
The Gulf Coast GTL project was expected to have a capacity of
roughly 140,000 barrels of liquid fuel per day from natural gas
feedstock. Moreover, the availability of gas is abundant in the
locality. Despite these factors, the company felt that the North
American project was not a feasible opportunity in the long run.
Shell believes that the expected development expenses as well as
uncertainty related to future oil and gas prices pose a potential
threat when considerations of profit are taken into
Management reveals that the recent decision reflects the
company's plan to allocate capital to more profitable projects
worldwide, with a view to increase shareholder value.
Petrobras' New Pricing Hurts Shares
U.S.-listed shares of the Brazilian state-run energy giant,
Petroleo Brasileiro SA, or
) slipped almost 11% since opening on Monday on news of its new
pricing policy. The company had announced plans to increase
gasoline price by 4% and diesel price by 8% effective Nov 30
Petrobras announced of the price hike as a measure to lower
its leverage, bringing it down to the permissible limit according
to the Business and Management Plan 2013-2017 and better align
Brazilian oil prices with international prices. Once implemented,
the company should see improved margins.
However, the news backfired as shares dropped substantially.
The hike, permitted for the first time by the government since
Mar 2013, fell below expectations. It is unlikely that this price
hike will bridge the gap to reach the break-even point in the
company's downstream operations.
The government's continued intervention in deciding the fuel
prices had negative effects on the company's financials.
Moreover, any further hike seems unlikely until the Brazilian
Presidential elections in October next year and inflation runs
high. The transparency behind the policy is another questionable
matter and reflects investor sentiment.
QEP to Spin Off Midstream Business
Domestic energy explorer
QEP Resources Inc.
) plans to separate its midstream business, QEP Field Services
Company, paying heed to the spin-off suggested by activist hedge
fund and the company's largest shareholder - Jana Partners LLC.
The natural gas gathering and processing business will be
separated along with QEP Resources' stake in the master-limited
partnership (MLP), QEP Midstream Partners LP (QEPM).
The spin-off is in response to the pressure imposed by Jana
Partners LLC. Jana Partners holds a 7.6% stake in QEP Resources
and demanded this spin-off citing poor performance by the company
and suggesting the need for restructuring. Jana was also
unsatisfied with the way QEPM was created and asked for a more
complete separation of the MLP.
Hess to Sell Indonesian Assets
Integrated energy company
) announced two separate agreements with a joint venture between
state-owned Indonesian oil and natural gas company, PT Pertamina
and Thai oil and gas company, PTT Exploration and Production
Per the deals, Hess would sell its interests in both the
Pangkah and Natuna A assets located off the coast of Indonesia
for a total after-tax consideration of $1.3 billion. Together,
the two assets produced an average of 15,000 barrels of oil
equivalent per day net to Hess in the first three quarters of
Hess plans to use the proceeds from the asset sales on buying
back shares under its existing $4 billion share repurchase
program. The agreements are expected to close before the end of
the first quarter of 2014.
Petroleum Unveils $4B Budget
Independent oil refiner and marketer,
Marathon Petroleum Corp.
) said it plans to invest roughly $4.0 billion during the
2014-2016 timeframe. This planned investment reflects a $2.4
billion hike from what Marathon Petroleum had invested during the
previous three years for the segments.
Out of $4.0 billion, the company is expecting to spend around
$640.0 million for midstream properties, $2.4 billion for
Pipeline Transportation, while the remaining $925.0 million will
be allocated for expanding the Speedway retail segment.
Other Headline News on Energy:
Statoil Grants Options Worth $16B
Norwegian energy giant
) reported that it has exercised 11 options worth $16 billion.
The suppliers offer a range of services, including maintenance
and modification (M&M) as well as isolation, scaffolding and
surface protection (ISS) suppliers.
The M&M work will be carried out on 22 facilities offshore
and onshore, by five companies, which have gained extensions from
Aug 1, 2014 to Jul 31, 2016. The companies awarded M&M
contracts are - Aibel AS, Aker Solutions MMO AS, Reinersten AS,
Fabricom AS and Apply Sorco AS.
FMC Tech to Supply ROVs to Tidewater
Oil drilling equipment maker
FMC Technologies Inc.
) has contracted with offshore vessel owner, Tidewater, to
deliver six work-class Remotely Operated Vessel (ROV) systems for
the subsea operations business of the latter. The deal will fetch
$30 million in revenues for FMC Tech.
Cobalt Confirms Lontra Discovery
Oil and gas explorer Cobalt International Energy Inc.
confirmed that it has successfully tested its previously
announced Lontra #1 pre-salt discovery well in Block 20, offshore
Angola. The company noted that the discovery well encountered
both a high liquids content gas interval and an oil interval.
Cobalt is partnered by British major BP plc and Sonangol Pesquisa
e Producao, S.A., with 30% working interest each, in the
Performance Chart of Some Major Companies:
The following table shows the price movement of the major oil
and gas players over the past week and during the last 6
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
tracking Thursday's monthly retail sales data for Nov that will
shed further light on the economy's wellness and the need for the
bond buying policy. Energy traders will also be focusing on a
slew of economic data from China.
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FMC TECH INC (FTI): Free Stock Analysis
HESS CORP (HES): Free Stock Analysis Report
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PETROBRAS-ADR C (PBR): Free Stock Analysis
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