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Broader Market:

West Texas Intermediate (WTI) crude prices finished the week up 2.4% at $110.53 per barrel, outperforming the broad-based S&P 500 index (^GSPC), which rose 1.36% to 1,655.17. The single most important contributor to this upward pressure has been the Syrian conflict, particularly whether or not the U.S. will intervene. Oil prices were also buoyed by positive momentum in the domestic manufacturing and services sector, as well as the Energy Information Administration (EIA) report.

The EIA’s weekly ‘Petroleum Status Report’ showed that crude inventories fell by 1.84 million barrels for the week ending Aug 30 to 360.21 million barrels. An uptick in refinery processing rates and lower imports led to the stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1989. In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were down 1.83 million barrels from the previous week’s level to 34.76 million barrels. 

(Read our full coverage on the EIA release: Syria, Supply Drop Pushes Crude Above $108)

The Sub-Sectors:

Integrated: Among the major integrated players, British major BP plc (BP - Analyst Report) was the lead performer, whose U.S.-listed shares gained 1.3% for the week after the company won an appeal to fast-track its ongoing $9.6 billion settlement associated with the 2010 Gulf of Mexico oil spill. But overall, most of the ‘Big Oil’ is suffering from marginal or falling returns even as crude prices are at 2-year highs, 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 rising 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 1.8% during the week.  

Leading the pack was Murphy Oil Corp. (MUR - Analyst Report), which jumped 6.1% following the spin-off of its retail marketing business into a separate, independent and publicly traded entity Murphy USA Inc. (MUSA - Snapshot Report). Shares of Hess Corp. (HES - Analyst Report) and ConocoPhillips (COP - Analyst Report), both rose around 3% through the week, as the former boosted dividend by 150%, while the later got a favorable ruling from an international arbitration tribunal regarding a dispute with Venezuela.

One of the best performers last week was Oasis Petroleum Inc. (OAS - Snapshot Report), which added 10.8% to its stock price. The energy producer bought oil and gas assets in North Dakota’s Williston Basin for $1.5 billion that will help boost its production.

Oilfield Services: The oil services group – represented by the Philadelphia Oil Services Sector Index (^OSX) – was up 4.2% through the week. Climbing 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 - Analyst Report) and Halliburton Co. (HAL - Analyst Report) both of which recently reached their 52-week highs. However, Houston-based Oil States International Inc. (OIS - Snapshot Report) was the most impressive performer in the group, gaining 6.8% after announcing the sale of its tubular products unit to a private company for $600 million in cash, apart from raising its share repurchase program by $300 million to $500 million.  

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 has been negatively impacted due to a rise in the input cost and lower crack spreads.

The only company bucking the trend was Valero Energy Corp. (VLO - Analyst Report), adding 3.5% to its share price last week. Valero, the largest domestic independent refiner, together with its joint venture associate Kinder Morgan Energy Partners L.P. (KMP - Analyst Report), brought into service the $250 million, 141-mile Parkway Pipeline for the transfer of refined petroleum products.     

Natural Gas:

Natural gas prices (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana) have hovered around $3.60 per million Btu (MMBtu) during the past week, as there were no apparent catalysts.

The U.S. Energy Department's weekly inventory release showed a larger-than-expected rise in natural gas supplies on account of weak demand. Stockpiles held in underground storage in the lower 48 states rose by 58 billion cubic feet (Bcf) for the week ended Aug 30, higher than the guided range (of 53–57 Bcf gain). The increase – the twenty-first injection of 2013 – also exceeded last year’s build of 33 Bcf but was lower than the 5-year (2008–2012) average addition of 60 Bcf for the reported week.

(Read our full coverage on the EIA release: Natural Gas Build Below 5-Yr Average)

Performance Chart:

Ticker

Last Week’s Performance

6 month performance

XOM

+0.10%

+1.26%

CVX

+0.65%

+2.94%

BP

+1.26%

+3.18%

SLB

+5.19%

+11.15%

HAL

+3.21%

+19.67%

RIG

+2.97%

-11.26%

VLO

+3.46%

-8.44%

COP

+2.87%

+17.85%

 

This week too, the direction and magnitude of energy price movement will be determined by the clarity on the potential military strike on Syria. Investors are eagerly waiting for the U.S. Senate vote on the controversial issue, which has been scheduled by the end of the week.

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