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Crude prices edged back over $100 during the past week on expectations of an improving demand outlook and positive trade data out of China, while natural gas moved higher amid bullish supply data and concerns over a key pipeline explosion.

Among the newsmakers, oil and gas producer Occidental Petroleum Corp. (OXY - Analyst Report) announced plans to spin off its California business, creating two independent companies.     

Crude Oil:

Crude prices edged up a little last week on a positive demand outlook for heating oil amid below-normal temperatures that have prevailed for most part of the winter. The commodity got some more support from Janet Yellen’s reassuring Fed commentary and strong January trade data from China.

However, at the same time, dismal consumer and labor reports weighed on crude prices. Sentiments were further dampened by the soft Energy Information Administration (EIA) report that showed a higher-than-expected increase in oil inventories, which remains in the upper half of the average for this time of the year.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil was slightly in the black and settled at just over $100.00 per barrel, gaining a meager 0.3% for the week. 

Natural Gas:

Natural gas rallied last week on the back of a large decrease in supplies, forecasts of continued freezing cold weather conditions, and reports of an explosion in a major pipeline.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states fell by 237 billion cubic feet (Bcf) for the week ended Feb 7, higher than the guided range (of 228–232 Bcf drawdown). Moreover, the decrease was considerably higher than both last year’s withdrawal of 152 Bcf and the 5-year (2009–2013) average reduction of 162 Bcf for the reported week.

Chilly weather forecasts – in the eastern U.S. over the next few days – are likely to further spur natural gas’ demand for heating, while an explosion in an important pipeline in southern Kentucky could send prices soaring again.

Influenced by these factors, natural gas prices ended Friday at around $5.21 per million Btu (MMBtu), up 9.0% over the week.

Energy Week That Was:

The week’s energy coverage was dominated by the following news:

Occidental to Break in Two

Los Angeles-based energy explorer Occidental Petroleum Corp. announced plans to separate its oil and gas assets in California into a separate company, apart from shifting its headquarters to Houston. The spin-off will see the formation of a new entity that will have around 8,000 employees and will be the state’s biggest natural gas producer. Endorsing the move as a bid by Occidental to drive up the value of the company, shares closed up 3.8% at $95.76 on the NYSE trade on Friday.

Exxon Mobil Produces First Gas from Damar

Energy giant Exxon Mobil Corp. (XOM - Analyst Report) produced first gas from its Damar field, off the east coast of Peninsular Malaysia. With a forecasted peak capacity of 200 million cubic feet per day, the project is expected to help Malaysia meet its rising natural gas demand. In particular, the startup of Damar – in which Exxon Mobil holds a 50% operated interest – is another important step towards the company’s global production growth in the coming years. 

Q4 Earnings Crash at Apache, to Exit Argentina

U.S. energy firm Apache Corp. (APA - Analyst Report) reported weak fourth quarter results, as asset sales reduced production. The production of oil and natural gas averaged 687,911 oil-equivalent barrels per day (55% liquids), down approximately 14.0% year over year. In another announcement, Apache said that it will sell its operations in Argentina to state energy company YPF S.A. for $800 million in cash. The decision is in accordance with the Houston-based oil and gas explorer’s plan to exit business that do not fit into the company’s long-term growth plan, apart from paring borrowings and fund buybacks.

Phillips 66 to Divest Assets

U.S. refiner Phillips 66 (PSX - Analyst Report) announced that it would divest its products pipeline system and two storage spheres for $700 million to its spun-off partnership Phillips 66 Partners L.P. The to-be-sold properties include Phillip 66's Gold Line System – which consists of a 681-mile refined products pipeline that runs from its Borger, Texas refinery to Cahokia, Illinois – and two refinery-grade propylene storage spheres. The transaction is expected to be completed by Mar 1.

ION Geophysical Shares Soar on Strong Results

Shares of energy technology provider ION Geophysical Corp. (IO - Snapshot Report) popped more than 29% on Thursday following a better than expected earnings announcement. The company, which went through a tough period in 2013 thanks to cost overruns, easily beat profit and revenue estimates, as clients worldwide saw value in its solutions.             

Performance Chart of Some Major Companies:

The following table shows the price movement of the major oil and gas players over the past 5 days and during the last 6 months.

 

Ticker

Last 5 Day’s Performance

6 month performance

XOM

+4.50%

+7.05%

CVX

+1.68%

-5.34%

COP

+1.87%

-2.75%

OXY

+6.05%

+10.69%

SLB

+2.06%

+10.41%

RIG

+2.27%

-8.23%

VLO

+3.77%

+40.81%

TSO

+5.23%

+2.99%

 

Other Headline News on Energy:

Pioneer Earnings Miss Estimates by a Whisker

Oil and gas finder Pioneer Natural Resources Co. (PXD - Analyst Report) missed earnings estimates by a whisker, as expenses rose sharply and offset the strong revenue growth. However, the numbers improved from last year, backed by higher price realization. On an encouraging note, total production in the reported quarter averaged approximately 164.2 thousand barrels of oil equivalent per day, up 8.3% year over year. The growth was attributable to robust yield in core growth assets – Spraberry field, Wolfcamp Shale and Eagle Ford Shale.     

Encana Beats on Q4 Earnings, Lags Revs

Calgary, Alberta-based exploration and production company Encana Corp. (ECA - Analyst Report) reported better-than-expected fourth quarter earnings. A significant rise in liquid output from resource plays in USA and Canadian divisions aided the results. However, reduced natural gas realization made a dent in Encana’s revenues.

Kodiak Shares Up 5% on Prelim Update

Independent energy company Kodiak Oil & Gas Corp. reported good numbers in its preliminary 2013 operational and financial update. Kodiak shares went up post announcement and settled at $11.35 on Feb 11, up 5.1% from the previous close. As of Dec 31, 2013, Kodiak’s total estimated proved reserves jumped 77% year over year to about 167.3 million barrels of oil equivalent (83% oil, 46% proved developed). Additionally, average daily sales volumes for 2013 went up 103.0% year over year to 29,200 barrels of oil equivalent per day.

This Week’s Outlook:

Apart from the usual releases in this holiday shortened week – the U.S. government data on oil and natural gas – market participants await housing market numbers that will shed further light on how well the economy is doing.

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