It was a week when both oil and natural gas prices settled lower.
On the news front, British energy major BP plc BP will take a $17.5 billion write-down in its second-quarter results in the wake of weak commodity prices, while ConocoPhillips COP said that it will restore its oil production on improving fundamentals.
Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures slumped 8.3% to close at $36.26 per barrel, while natural gas prices fell 2.9% for the week to finish at 1.731 per million Btu (MMBtu). In particular, the oil markets reversed their gain from the previous week when the commodity pushed toward $40 a barrel.
Coming back to the week ended Jun 12, the crude benchmark hit a speed bump and recorded a big decline after the U.S. Energy Department's latest inventory release revealed that crude inventories rose to record highs. Further, Federal Reserve’s dour economic outlook and worries about a second wave of coronavirus infections kept investors on the defensive.
Meanwhile, natural gas ended lower on weak LNG demand and continued oversupply.
Recap of the Week’s Most Important Stories
1. BP has estimated a write-off of up to $17.5 billion from its assets value following the downward revision of its long-term oil and gas prices.
The British energy giant expects the ongoing coronavirus pandemic to persistently hurt global energy demand. Also, the company believes that post COVID-19, there will be growing transition to low-carbon economy since investors are increasingly pressing oil companies to drastically reduce carbon emissions, which is in line with the Paris climate goals.
To incorporate these impacts, BP trimmed its forecast for Brent oil price from $70 per barrel to $55 until 2050. The new price outlook convinced this integrated energy firm to include non-cash impairment charges and write-offs worth $13-$17.5 billion, after tax, in the second quarter.
2. ConocoPhillips has decided to slowly increase production of oil and natural gas since the commodity pricing scenario is improving.
Earlier, the coronavirus-dented global energy demand convinced many energy players to impose production cap by curtailing operations. Now, the improved oil prices have convinced many upstream companies to remove the self-imposed cap and to restart producing from the wells, added ConocoPhillips.
ConocoPhillips has also planned the gradual increasing of production volumes over the next few months. Thus, the explorer, which shut down a third of its production in May and June, will be responding to the surge in oil prices by slowly increasing volumes. (Here's Why ConocoPhillips is Planning to Raise Production)
3. Shares of QEP Resources, Inc. QEP have skyrocketed 131.5% in the past couple of days following the amendment of its revolving credit facility on Jun 4.
The amendment involves expansion of liquidity by not less than $500 million along with the provision of essential financial flexibility to put into practise its ongoing business strategy. This alteration will be supported by Wells Fargo Bank, National Association and other lenders. These efforts boost the Zacks Rank #2 (Buy) company’s maturity profile and help it enjoy greater liquidity for day-to-day operations.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Also, the move will drive the company’s existing cash flow in the prevalent tough market environment. (QEP Resources Stock Surges 132% in 2 Days: Here's Why)
4. Petrobras PBR recently grabbed a bargain with a new five-year deal to supply naphtha to Braskem SA’s (BAK) unit in Bahia and Rio Grande do Sul states. Per the contract, Petrobras will supply at least 650,000 metric tonnes of naphtha annually to Braskem with an additional maximum capacity of 2.8 million metric tons. These new agreements will follow the existing sales contracts that are scheduled to close in December.
The five-year pact reflects a change in the plans of Petrobras, which reduced naphtha sales to Braskem in recent years amid its potential exit from the industry under its asset-sales program.
Petrobras intends to sell off its 36.1% stake in Braskem under its $20 -$30 billion divestment program for the 2020-2024 period. The divestiture can be made viable by converting Braskem's share structure to a single class of common shares, which will allow the stock to be traded in São Paolo Stock Exchange’s Novo Mercado premium listing segment. This migration to the Novo Mercado will aid Petrobrasto to sell its interest in Braskem. (Petrobras Clinches 5-Year Naphtha Supply Deal From Braskem)
5. In its weekly release, Baker Hughes Company BKR reported another drop in the U.S. rig count. Rigs engaged in the exploration and production of oil and natural gas in the United States fell to an all-time low of 279 in the week through Jun 12, compared with the prior-week count of 284. The current national rig count is well below the prior year’s 969.
Investors should know that with the recent all-time low mark, the tally has touched record-low levels for six successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.
Oil rig count was 199 in the week through Jun 12, compared with 206 in the week ended Jun 5. Since crude prices are in the bearish territory, explorers are cutting their capital budget considerably. This led the weekly tally of oil rigs to fall for 13 consecutive weeks. (US Oil & Gas Rig Tally Hits Record Lows for 6 Straight Weeks)
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
Company Last Week Last 6 Months
XOM -11.1% -31.9%
CVX -8.4% -21.7%
COP -10% -30.3%
OXY -11% -50.9%
SLB -13.6% -51.3%
RIG -11.6% -66.8%
VLO -14.5% -32%
MPC -11.9% -37.5%
The Energy Select Sector SPDR – a popular way to track energy companies – lost 11.2% last week. The worst performer was downstream operator Valero Energy (VLO) whose stock slumped 14.5%.
Longer-term, over six months, the sector tracker is down 34%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 66.8% price plunge.
What’s Next in the Energy World?
As global oil consumption gradually ticks up, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - and the Baker Hughes data on rig count, will be on the energy traders' radar.
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Transocean Ltd. (RIG) : Free Stock Analysis Report
Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
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