Energy was the worst performing sector for the week amid losses in the broader market as negative factory data from China and disappointing corporate earnings reports weighed on sentiment. A busy week of economic data also drove trading, most notably Friday’s employment report, which showed the slowest pace of job creation since September, falling short of estimates. Energy lagged on pressure from the commodity complex.
Energy corporate headlines were dominated by the bevy of small and midcap E&Ps reporting losses which were mostly in line with estimates with several companies even upping their production guidance and announcing divestitures of non-core assets. Other notable headlines included large beats and further cost cuts shown by Royal Dutch Shell along with significant losses seen by Weatherford while all the refiners showed smaller than expected profits with the exception of Tesoro.
Many Gathering and Processing MLPs reported results that showed stronger volumes than expected and guided to improvements in NGL fundamentals. Recent funding announcements highlighted improved investor sentiment in the MLP market especially as Phillips 66 Partners completed an upsized offering and several others disclosed notable capital raises via the ATM.
The biggest story of the week was on Sunday night when it was announced that Halliburton and Baker Hughes mutually agreed to terminate their proposed merger as they were unable to find a solution to antitrust concerns and as the macro environment also challenged the deal’s economics. Halliburton paid $3.5 billion, which Baker Hughes will use for share buybacks and for paying down debt.
After four consecutive weeks of gains, WTI crude oil closed lower by 2.74% to at $45.92, pressured by strength in the USD as well as comments from various OPEC members pointing to increased output (even as Iran signaled it would eventually participate in OPEC cuts). Wednesday’s inventory report showed a bigger than expected supply build, but the data was neutral for light products due to a build in gasoline inventories vs. an expected draw which was countered by a draw in distillate inventories vs. an expected build. Most of the headlines over the week, however, were bullish for oil prices. Canadian wildfires in Alberta’s oil sands region took about 1 million barrels per day of production off line, resulting in tighter WCS-WTI differentials. Fighting in Nigeria and Libya also threatened supplies in those regions. Friday’s rig count report showed that rigs fell by 11 for the week.
Natural gas futures fell 3.54% to $2.101, extending last week’s losses, as the storage report showed an injection of 68 Bcf which was slightly bigger than expected. However, demand figures from EIA and Bentek were also up for the week due to cooler temperatures in the Northeast and Midwest.
Major indices were lower for a second consecutive week, as investors focus remained on earnings and as a heavy week of economic data, which concluded with a disappointing jobs report on Friday, drove trading. For the week, the Dow lost 0.2%, the Nasdaq fell 0.8%, the S&P 500 slid 0.4%, and the Russell 2000 moved lower by 1.4%.
In economic news, the Labor Department said nonfarm payrolls increased by 160,000 jobs last month as construction employment barely rose and the retail sector shed jobs. The unemployment rate held at 5.0 percent that was because people dropped out of the labor force. Average hourly earnings were the only bright spot in the employment report, rising eight cents or 0.3 percent last month. Another report from the Labor Department earlier in the week showed productivity declined at a 1.0 percent annual rate in the first quarter after shrinking at a 1.7 percent pace in the fourth quarter. Separately, the Institute for Supply Management said its index of national factory activity slipped to 50.8 last month from a reading of 51.8 in March, and that its non-manufacturing index rose 1.2 percentage points to a reading of 55.7 in April. Additionally, the Commerce Department said the trade deficit fell 13.9 percent to $40.4 billion in March. The Commerce Department also said new orders for manufactured goods increased 1.1 percent after February's downwardly revised 1.9 percent decline.