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
Among the major integrated players, Italian energy behemoth
) 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.
) 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.
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.
) 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
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.
Oil States International Inc.
) 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
Weatherford International Ltd.
) was up 2.2%, recouping some of the losses it notched the
previous week following the abrupt departure of its CFO.
) 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
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.
), 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 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
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
Last Week's Performance
6 month performance
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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