(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
A gauge of the market capitalization of oilfield services (OFS) companies has risen markedly since late-October, indicating an uptick in the sector. Read on to learn about this encouraging development, along with other recent oil and gas market trends.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Curran, Senior Energy Services and Equipment Analyst in Equity Research, B. Riley FBR, Inc.: The PHLX Oil Service Sector Index (OSX) remained firmly in a resilient primary uptrend, meaning that: with each rally and retreat of 10 percent or greater, the composite is putting in higher lows and higher highs. This primary uptrend lifted off from an Oct. 28 close of $26.30 and saw the OSX soar to a close of $43.25 on Nov. 24, for a record-setting run of 64 percent. It then shifted into a pullback that stopped just shy of a full correction, taking the OSX down nine percent to a close of $39.31 on Nov. 30. The index is now in the second rally of this month, one that has seen it increase by 20 percent to a close of $47.03 on Dec. 10. Notably, with Thursday’s close, the OSX has now surpassed the peak of the last primary uptrend, which ended on June 8 at $46.27, and set a new post-early March (when daily U.S. COVID-19 cases started to surge) high. We believe this primary uptrend will persist until at least the early innings of the fourth quarter of 2020 earnings season.
Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: Airlines are starting to report an increase in bookings for 2021 as confidence returns for fliers. Not only have many consumers delayed activities that they need to fly for, but many have simply aggregated points that they just didn’t use in 2020. A lot of things are making it easier for people to start booking trips.
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Brent crude broke the $50 mark for the first time since March this week while WTI rallied to crest past $47, a nine-month high, as major market signals were in conflict. The COVID-19 virus situation in the U.S. couldn’t be more bleak as daily infection and death rates continue to set records. But, the U.S. Food and Drug Administration approval of Pfizer’s vaccine is expected today, providing optimism for the longer-term along with the start of actual vaccinations in the U.K. A hugely bearish inventory report was mostly shrugged-off by traders, with some analysts questioning the accuracy of the report.
The U.S. Energy Information Administration (EIA) Weekly Petroleum Status Report showed a huge increase of 15 million barrels last week vs. a Wall Street Journal analysts’ forecast of a 1.2 million-barrel decline and an American Petroleum Institute report showing a gain of 1.1 million barrels – the main reason behind Wednesday’s oil rally. At 503 million barrels, inventories of crude have risen back up to 11 percent above the five-year average. Refinery utilization increased to 79.9 percent. Total motor gasoline inventory increased by 4.2 million barrel, with the variance to the five-year average up to five percent. Distillate inventories increased by 5.2 million barrels to 11 percent above the five-year average. (Demand for jet fuel in particular fell dramatically in the post-Thanksgiving travel week.)
Seemingly always the contrarian to the national trend, the key Cushing, Okla., hub saw a decline of 1.36 million barrels to a total of 58 million barrels – or about 76 percent of capacity. U.S. oil production last week held at 11 million barrels per day (bpd), which is down 1.7 million bpd from a year ago. The EIA expects U.S. oil production to average 11.1 million bpd in 2021, down from their last forecast. Weekly exports of crude fell last week to 1.8 million bpd, a two-year low, as global markets seem well-supplied and traders pointing to this as part of the explanation for the large increase in stored oil.
The OPEC+ group agreed last week to hold their planned output increase next month to only 500,000 bpd, down from the 2 million bpd previously agreed to.
After rising above the 30,000 mark again Wednesday, the Dow is down at week’s end over concerns about a messy Brexit and a higher-than-expected unemployment report. The S&P and NASDAQ are also off their high-water marks this week. In another supportive signal for crude, the Wall Street Journal U.S. dollar index remains below 86 this week while trading at one-year lows.
Meanwhile, natural gas prices look to settle higher on the week on a slightly higher-than-expected storage injection. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of 91 billion cubic feet (Bcf) last week vs. forecasts calling for minus 89 Bcf. Total inventory now stands at 3.85 trillion cubic feet, which is nine percent higher than last year and seven percent over the five-year average. Supply last week was 88.9 Bcf per day (Bcfd) vs. 89.1 the prior week and about 97 Bcfd a year ago. Total demand last week was plus 10 Bcfd to 113 Bcfd, with power and residential both up while industrial consumption was essentially flat. Exports to Mexico were 5.6 Bcfd while exports of LNG were higher at 11.2 Bcfd, respectively. Corpus Christi LNG placed into service its third and final train last week, bringing the facility’s total baseload capacity to 1.8 Bcfd. There are now 15 LNG trains in the U.S with a combined baseload capacity of 9.5 Bcf.
Rigzone: What were some market surprises?
Seng: The huge gain in crude inventory was totally unexpected, and some market observers even expect a downward revision in the coming weeks. There have been large areas of warmer-than-normal temperatures which are keeping a lid on natural gas prices, which will struggle to see the $3 level anytime soon.
Le Dain: The crude build this week was mostly due to import and export timing. Which, combined with continued vaccine rollout progress, allowed the market to trade through it and up.
Curran: A public OFS (company) announced that it had received an accepted an all-cash offer from a private equity firm. On Dec. 7, SEACOR Holdings (NYSE: CKH), the marine transportation/logistics provider, announced a definitive agreement with AIP (American Industrial Partners) to take the company private at valuation of roughly $1 billion, including net debt. AIP has agreed to pay $41.50 per share – representing premiums of 14 percent and 31 percent, respectively – to the stock’s closing price on Dec. 4 and 90-day volume weighted average price (VWAP).
While many private equity funds have been struggling to sustain the life of or somehow exit from beleaguered energy investments, this deal is a reminder that there are still firms out there who have both the firepower and appetite to exploit the oil patch’s ongoing, historic dislocations.
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