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Broader Market:

Last week, energy stocks mirrored the broader equity markets’ fears about the long-anticipated government shutdown. In fact, the Washington drama over budget negotiations and debt-ceiling talks continued to hog the limelight from everything else, even as the jobs and consumer spending data broadly came in positive.  

Moreover, the initial euphoria over the Fed’s ‘no Taper’ verdict have given way to a more contemplative reaction, as oil traders come 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, together with news about Libyan oil production resumption and signs of thawing tensions between the U.S. and Iran, also continued to put selling pressure on crude prices.

Sentiments were further dampened by a bearish Energy Information Administration (EIA) report that showed a surprise increase in inventories.  

(Read our full coverage on the EIA release: Crude Tumbles on Bearish Supply Report)

By close of trade on Friday, West Texas Intermediate (WTI) oil was firmly in the red and settled at $102.87 per barrel, losing 1.8% for the week.

The broad-based S&P 500 index, which shot to record highs during the previous week, lost 1.1% to close at 1,691.75 on Sep 27, the first weekly decline since Aug.  

The Sub-Sectors:

Integrated: Among the major integrated players, French behemoth Total S.A. (TOT - Analyst Report) was the lead performer following a positive investor presentation on Monday. The U.S.-listed shares of Total gained 4.0% for the week after it outlined plans to deliver production and free cash flow growth. Europe’s third-biggest oil company sees overall 2017 production of about 3 million oil-equivalent barrels per day (up 31% from current levels), while continuing to restructure its downstream operations and control capital expenditures. Later in the week, Total announced the final investment decision for the first development phase of Bolivia’s Incahuasi gas and condensate field.   

Norwegian giant Statoil ASA’s (STO - Analyst Report) stock price rose 1.1%, as investors cheered a major oil discovery off Canada's east coast that is estimated to contain up to 600 million barrels of recoverable oil, the company’s largest outside the home country.

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.

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. Notwithstanding the overall bearish industry trend, the SIG Oil Exploration & Production Index traded edged up 0.7% during the week.

Shares of domestic energy explorer Cabot Oil and Gas (COG - Analyst Report) jumped after it disclosed initial production growth guidance of up to 50% for 2014. The company also reaffirmed this year’s volume growth target of 44–54%. Post announcement, shares rose to an intraday high of $37.48 on Sep 26, before settling at $37.12, up 4.4% from the previous day close.

Oilfield Services: The oil services group – represented by the Philadelphia Oil Services Sector Index – was down 0.4% through the week. But with oil prices still north of $100 a barrel and rising capital spending, the industry is positioned for better times ahead.

It was a happening week for the equipment suppliers with two companies – National Oilwell Varco Inc. (NOV - Analyst Report) and Noble Corp. (NE - Analyst Report) – announcing spin-offs. National Oilwell Varco is considering a plan to separate its distribution segment from its remaining businesses, thereby creating two independent, publicly traded companies that are better positioned to concentrate on their respective strengths. On the other hand, Noble, an offshore drilling contractor, has decided to split half of its fleet into another company to concentrate on its high-specification assets operating in deeper waters. 

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.

However, with oil going down last week, almost all major downstream stocks except Valero Energy Corp. traded in the black, with the top gainer being HollyFrontier Corp., which advanced 3.0% over the week. Among the newsmakers, Marathon Petroleum Corp. (MPC - Analyst Report) board announced plans to buy back an additional $2 billion of its common stock, while Tesoro Corp. (TSO - Analyst Report) wrapped up the sale of its Kapolei refinery and a number of retail gas stations in Hawaii.

Natural Gas:

Natural gas spot prices tumbled to around $3.50 per million Btu (MMBtu) on Thursday, Sep 26, following the U.S. Energy Department's weekly inventory release that showed a larger-than-expected rise in the commodity’s supplies. On a further bearish note, the storage build was also higher than the benchmark 5-year average gain for the week.

Mild weather forecasts – that could slow demand even more – worsened the situation. However, natural gas ended slightly higher Friday (at $3.59 per MMBtu), as investors came back to accumulate the commodity at low prices.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states rose by 87 billion cubic feet (Bcf) for the week ended Sep 20, above the guided range (of 74–78 Bcf gain). The increase – the twenty-fourth injection of 2013 – also exceeded both last year’s build of 79 Bcf and the 5-year (2008–2012) average addition of 75 Bcf for the reported week.

(Read our full coverage on the EIA release: Natural Gas Stifled by Big Supply Gain)

Performance Chart:

Ticker

Last Week’s Performance

6 month performance

XOM

-1.99%

-5.21%

CVX

-1.83%

+1.58%

TOT

+4.03%

+20.47%

COP

-0.97%

+14.93%

NOV

-1.02%

+11.95%

NE

-1.70%

-0.24%

TSO

+0.74%

-22.64%

MPC

+0.67%

-28.40%

This Week’s Outlook:

This week, investors will be closely tracking a host of economic data on deck for release that will have a direct bearing on the future of Federal Reserve’s massive bond buying program. Of particular significance is Friday’s non-farm payroll report for Sep that may contain indications regarding the economic recovery and whether it is strong enough for the central bank to trim the $85 billion a month stimulus.

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.

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