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Broader Market:

Energy stocks failed to mirror the broader equity markets’ gains last week amid concerns that the 16-day U.S. government shutdown has eroded demand in the worlds biggest oil consumer.

While the broad-based S&P 500 index celebrated the last-minute compromise to save the country from a possible debt default by hitting a new recode high of 1,745.31, oil traders were rather circumspect, as they pondered over the effect of the shutdown in terms of lost oil and gas production.    

Sentiments were further dampened by a bearish American Petroleum Institute (API) report – a proxy for the Energy Information Administration (EIA) release, which did not come out last week due to the Washington drama – that showed a big increase in inventories.

Even positive GDP growth data out of China could not turn the tide.

In fact, by close of trade on Friday, West Texas Intermediate (WTI) oil was firmly in the red and settled at $100.81 per barrel, losing 1.2% for the week.

The Sub-Sectors:

Integrated: Almost all major integrated players traded in the black, with the top gainer being Anglo-Dutch supermajor Royal Dutch Shell plc (RDS.A - Analyst Report), which jumped 3.7% over the week despite a firm reason to justify the increase.

On the other hand, U.S. energy behemoth Chevron Corp. (CVX - Analyst Report) was in the news last week, as the company fights a case in Manhattan to dispute a $19 billion environmental verdict it faces in Ecuador over pollution.

E&P: While all crude-focused stocks stand to benefit from $100+ 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. Last week, the SIG Oil Exploration & Production Index traded up 4.5%.

Top gainers include Chesapeake Energy Corp. (CHK - Analyst Report), whose shares were up 6.7%. The Doug Lawler-led natural gas producer announced a one-time charge of $70 million associated with the laying off of about 900 employees. Though this will affect Chesapeake’s second half results, investors saw this as an effort by the management to cut costs and improve profitability.

On the other end of the spectrum, Range Resources Corp. (RRC - Analyst Report) was at the top half of the losers’ chart last week, dropping 1.4%. Shares of the Fort Worth, TX-based energy explorer fell after it announced lower selling prices for the third quarter amid record production level.    

Oilfield Services: The oil services group – represented by the Philadelphia Oil Services Sector Index – was up 3.4% through the week. Friday saw a kickoff in quarterly reporting from the segment, with biggies Schlumberger Ltd. (SLB - Analyst Report) and Baker Hughes Inc. (BHI - Analyst Report) beating Zacks Consensus Estimates, in the process chalking up relatively solid numbers.

In particular, Houston TX-based Baker Hughes gained 7.3% on Oct 18 after the company posted strong results, thanks to impressive operating performances from its Middle East and Asia Pacific business units.   

Refining & Marketing: This has been one sector that has underperformed the rest of the energy industry for the bulk of this year. With refiners being buyers of oil – whose price saw a steep climb recently – their profitability have been squeezed due to a rise in the input cost and lower crack spreads. What’s more, the headwinds are expected to continue during the next six months, translating into a difficult earnings outlook through the first quarter of 2014. 

However, all major downstream stocks moved up last week following the end to the government shutdown. With the re-opening of the government services and agencies that were temporarily closed, oil and gas output is expected to pick up, translating into higher refined product demand.  

Among the newsmakers, a unit of Tesoro Corp. (TSO - Analyst Report) announced plans to remove and replace the 200-foot section of its North Dakota-based crude pipeline, which around 20,600 barrels of oil in a wheat field.  

Natural Gas:

With the shutdown robbing us of EIA’s inventory release last week, investors were focused 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.

Mild weather forecasts – which could slow demand even more – further worsened the situation. As a result, natural gas spot prices ended Friday at $3.76 per million Btu (MMBtu), down 1.5% over the week.

Performance Chart:

Ticker

Last Week’s Performance

6 month performance

XOM

+0.69%

-0.98%

CVX

+1.68%

+2.79%

RDS.A

+3.69%

+4.39%

CHK

+6.73%

+50.81%

RRC

-1.34%

+2.06%

SLB

+4.41%

+31.24%

BHI

+10.59%

+28.91%

TSO

+8.72%

-5.04%

This Week’s Outlook:

This week, investor’s will have plenty to chew on – from a flood of Q3 earnings reports, including some from S&P 500 components, to a host of economic data that got delayed as a result of the shutdown. In particular, energy traders will be awaiting the release of the U.S. government data on oil and natural gas, scheduled for Wednesday, Oct 23 and Thursday, Oct 24, respectively.

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