Crude prices climbed,
) put its $10 billion North Sea development on the back burner
Devon Energy Corp.
) announced a $6 billion acquisition.
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, U.S. manufacturing activity rebounded in Nov by
hitting an eight-month high of 54.3, up from the 51.8 registered
last month. Oil traders often refer to manufacturing statistics
as yardsticks to gauge the future fuel demand growth.
Coming to jobless numbers, the U.S. Department of Labor
reported that initial claims decreased 21,000 to 323,000 in the
week ending on November 16, from previous week's figure of
344,000. This was considerably below the consensus estimate of
However, sentiments were somewhat dampened by the Energy
Information Administration (EIA) report that showed another big
jump in inventories, which remains well 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 an unexpected 375,000 barrels for the week
ending Nov 15 to 388.46 million barrels. 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 1.74 million barrels, the sixth straight weekly
Wednesday's release of Fed minutes - which suggested that a
steady improvement in economic conditions may prompt the central
bank to taper its $85 billion bond repurchase plan in coming
months - also held back crude prices. 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 slowing
As a result of these factors, by close of trade on Friday,
West Texas Intermediate (WTI) oil settled at $94.84 per barrel,
gaining 1.1% for the week.
Major integrated players were mixed, with the most prolific
gainer being Chevron Corp. The San Ramon, CA-headquartered energy
behemoth added 3.3% to its share price last week, as it postponed
oil development from the Rosebank project in the U.K. North Sea,
owing to doubts over the economic viability of the $10 billion
The temporary abandoning of the high-profile project further
confirms shareholder pressure on the oil majors, who have
struggled lately with poor returns and expensive capital
In another development, world's largest publicly traded oil
Exxon Mobil Corp.
) has agreed to divest its 60% stake in the Hong Kong power
business for $3.4 billion to existing partners CLP Holdings and
state-owned China Southern Grid (CSG). The sale is an attempt by
Exxon to raise funds and direct the amount into its core
As mentioned above, several integrated global companies are
eager to control spending and enhance value for its investors
through asset sales, share buybacks or dividends in view of
lagging share prices.
Last week, the SIG Oil Exploration & Production Index traded
Top gainers include Devon Energy Corp., which was up 3.5%
through the week after agreeing to buy Texas-based oil and gas
explorer GeoSouthern Energy for about $6 billion in cash. The
market reacted positively to the news, as the deal will enhance
Devon's footprint in the Eagle Ford Shale. The acquired assets
bring with it an output of 53,000 barrels of oil equivalent (BOE)
per day and 82,000 net acres with at least 1,200 undrilled
In addition, reserves are estimated at 400 million barrels of
oil equivalent, the majority of which is proved reserves. Most
importantly, production from the properties are expected to grow
at a compound annual growth rate of 25% for the next few years,
reaching a peak production rate of 140,000 BOE per day, a
whopping increase of 164.1% from the current output level.
Among other developments, U.S. energy firm
) announced first gas production from the Jasmine field in the
United Kingdom, Central North Sea. The Houston, TX-based energy
explorer, which holds an operated interest of 36.5% in the
development, sees Jasmine as an important growth project that
will contribute significantly to its 3-5% production increase
through 2017. The field is on course to churn out 40,000 barrels
of oil equivalent per day in 2014.
The oil services group - represented by the Philadelphia Oil
Services Sector Index - was down 2.4% through the week.
) lost 4.3% through the week after the offshore drilling giant
informed that its deepwater rigs would make up a third of the
total number of fleet that will be available for work in 2014.
The unusually high number of out-of-contract rigs confirms the
concerns about the near-term softness for deepwater drilling
Last week also saw oilfield services behemoth
) getting a corporate credit ratings upgrade from Standard &
Poor's. The one notch improvement - to AA- from A+ - was based on
Schlumberger's leading product portfolio, specialty service
capabilities, proprietary technological expertise and strong
relationships with large oil companies.
Refining & Marketing:
Almost all major downstream stocks traded in the black, with the
top gainers being
), which advanced 5.3% over the week.
After going through a bumpy ride for much of 2013, the sector
has started to look up in recent weeks - and it's mainly to do
with the 'oil spread', the difference between the WTI price and
its global counterpart, Brent. With refiners being buyers of WTI,
while selling their products based on Brent, the wider the
so-called 'Brent-WTI spread', the better it is for the sector
During the last few weeks, WTI and Brent have been heading in
opposite directions. In fact, the WTI price has receded to the
sub-$95 per barrel level but Brent has stayed strong, at around
$110 per barrel. This has widened the oil spread to more than $15
per barrel, thereby boosting refinery stocks.
Tesoro was the only major newsmaker last week, as the company
sold a cluster of its southern California midstream assets -
including two marine terminals and a pipeline system - to
affiliate Tesoro Logistics L.P. for $650 million. The deal is
part of the 'drop-down' transactions (or asset buys from the
partnership's sponsor company) between Tesoro and Tesoro
Logistics - spun off by the former in 2011.
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 last week on the
back of a larger-than-expected decrease in natural gas supplies
and forecasts of cold weather conditions.
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
fell by 45 billion cubic feet (Bcf) for the week ended Nov 15,
higher than the guided range (of 36-40 Bcf drawdown).
Importantly, the decrease - the first withdrawal of the season -
was more than both last year's build of 36 Bcf and the 5-year
(2008-2012) average addition of 2 Bcf for the reported week.
Chilly weather forecasts - in the Eastern U.S. over the next ten
days or so - are likely to further spur the commodity's demand
Influenced by these factors, natural gas spot prices ended
Friday at $3.77 per million Btu (MMBtu), up 5.9% over 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 a bunch of data associated with durable goods orders,
consumer confidence and housing. The reports will shed further
light on the economy's wellness and the need for the bond buying
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