Back to Main

Oil & Gas Stock Roundup: Crude March Halts, CVX Gets a Reprieve - Analyst Blog

Posted: 9/17/2013 10:58:00 AM
Referenced Stocks: BRY;CVX;EIA;HAL;WTI

Broader Market:

With the Syrian crisis most likely to end diplomatically rather than through a military strike, crude prices receded last week while the stock market rallied.

By close of trade on Friday, West Texas Intermediate (WTI) oil capped previous gains and settled at $108.21 per barrel, losing 2.2% for the week. Fears about a potential U.S.-led Western attack against Syria over Damascus' alleged use of deadly sarin gas - raising prospects of wider unrest in the resource-rich Middle East - had driven prices to a two-year high of $110.62 per barrel on Sep 6. Oil prices were also tempered by the Energy Information Administration (EIA) report that showed only a small decline in inventories.

As per the EIA's weekly 'Petroleum Status Report,' crude inventories fell by a marginal 219,000 barrels for the week ending Sep 6, 2013 to 359.99 million. An uptick in refinery processing rates and lower imports led to the lower-than-expected stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1989.

The only silver lining came in the form of storage at the Cushing terminal in Oklahoma - the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange - which were down 639,000 barrels to their lowest since Feb last year.

(Read our full coverage on the EIA release: Crude Remains Firm on Cushing Supply Tumble )

On the other hand, the broad-based S&P 500 index ( ^GSPC ) neared a record high, rising 2.0% for the week to 1,687.99, as the U.S. and Russia brokered a deal to get rid of Syria's chemical weapons. The benchmark index was also buoyed by data pointing to a strengthening Chinese economy.

The Sub-Sectors:

Integrated: Among the major integrated players, U.S. energy behemoth Chevron Corp. ( CVX ) was the lead performer, whose shares gained 2.4% for the week after the company settled oil-spill lawsuits with prosecutors in Brazil for just $41.6 million, significantly lower than the $20 billion initially sought.

But overall, most of the '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.

E&P: 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 ( ^EPX ) traded up 2.9% during the week.  

Leading the pack was Noble Energy Inc. ( NBL ), which jumped 5.7% after announcing a natural gas discovery in the deepwater Gulf of Mexico and a new natural gas field offshore Israel.

Two of the best performers last week were domestic explorers Harvest Natural Resources Inc. ( HNR ) and LINN Energy LLC ( LINE ), shooting ahead of their peers with additions of 20% and 16% to their respective stock prices. While Harvest Natural Resources moved higher after announcing that it is in negotiations to sell its outstanding shares to Argentine firm Pluspetrol's subsidiary, LINN Energy's gain was tied to its $525 million deal to buy assets in the oil and gas-rich Permian Basin and reports that the Houston-based oil and gas producer has made progress in its bid to acquire Berry Petroleum Co. ( BRY ).  

Oilfield Services: The oil services group - represented by the Philadelphia Oil Services Sector Index ( ^OSX ) - was up 1.5% through the week. Above $100 a barrel oil prices and rising capital spending have positioned the industry for better times ahead, reflected by the strong share price performance of big players like Schlumberger Ltd. ( SLB ), Halliburton Co. ( HAL ) and Helmerich & Payne Inc. ( HP ), all of which are trading close to their 52-week highs.

On the other end of the spectrum, Weatherford International Ltd. ( WFT ) topped the losers' chart last week, dropping 3.7%. One of the world's big four oilfield service companies, Weatherford shares plunged following the abrupt departure of its CFO.

The Geneva-based drilling equipment manufacturer - rocked by an accounting scandal last year - was seen to be making steady progress under the stewardship of CFO, John H. Briscoe, with shares rallying some 70% since Mid-Nov. Therefore, the sudden CFO shakeup spooked investor sentiment amid uncertainty regarding the future leadership.    

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 spreads.

After flying high previously, Valero Energy Corp. ( VLO ) came back down to earth last week, falling 4.7%. Already operating in a struggling industry, the largest domestic independent refiner was penalized by investors after it bumped up its 2014 capital budget and revealed a host of planned project delays.   

Natural Gas:

Natural gas prices (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana) climbed steadily through the week to close at $3.68 per million Btu (MMBtu) after an in-line inventory build and the Obama administration's approval of natural gas exports from a fourth U.S. terminal.

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 65 billion cubic feet (Bcf) for the week ended Sep 6, within the guided range (of 64-68 Bcf gain). But the increase - the twenty-second injection of 2013 - exceeded both last year's build of 27 Bcf and the 5-year (2008-2012) average addition of 62 Bcf for the reported week.

(Read our full coverage on the EIA release: Natural Gas Supplies Continue to Build )

Performance Chart:


Last Week's Performance

6 month performance

























This Week's Outlook

This week, investors will be closely tracking the Federal Reserve's policy meeting on Wednesday to see if the U.S. tapers its monetary stimulus later this year. 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 growth.

BERRY PETROLEUM (BRY): Free Stock Analysis Report

CHEVRON CORP (CVX): Free Stock Analysis Report

HALLIBURTON CO (HAL): Free Stock Analysis Report

HARVEST NATURAL (HNR): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

LINN ENERGY LLC (LINE): Free Stock Analysis Report

NOBLE ENERGY (NBL): Free Stock Analysis Report

SCHLUMBERGER LT (SLB): Free Stock Analysis Report

VALERO ENERGY (VLO): Free Stock Analysis Report

WEATHERFORD INT (WFT): Free Stock Analysis Report

To read this article on click here.