Welcome to The Energy Watchlist: Weekly Recap and Outlook - a brief overview of the action I followed across the energy sector last week and a summary of the events and/or earnings announcements I will be watching over the next few days. Follow this account (link here) and turn the e-mail alert on to receive this article in your inbox each week.
After lagging the overall market in 2017 and being walloped along with other stocks in the early February pullback, the energy complex (XLE) had a relatively strong week last week, with the exception of proppant stocks which were taken down in the wake of disappointing results from U.S. Silica (SLCA).
Earnings-related volatility across the complex remains, with investors punishing E&P companies planning to outspend cash flow and rewarding those that announced buyback activities.
While this week is front-loaded with earnings announcements (outlined below), traders will undoubtedly be watching the US dollar (USD) to see if it remains under pressure and provides support for commodities, as well as keeping a close eye on inventory reports due out Wednesday. After a week that included geopolitical tensions and a surprise inventory draw, the bulls enter this week in control.
Last Week Recap
- Last week was a strong week for oil (USO), with multiple tailwinds pushing WTI prices to $63.55/bbl. Tailwinds last week included a surprise inventory draw, a reduction in net long speculative positioning (limiting the risk of a massive unwind that has been feared in the market), along with commentary from OPEC related to continued production cuts and the Joint Technical Committee's comment that global supplies will be balanced by Q32018. Additionally, geopolitical tensions provided support, with Libya's El Feel shutdown and tremors in the market related to the potential of Venezuelan supply being virtually taken offline during the April elections.
- Natural Gas (UNG) recorded modest gains as strong gas production, combined with a continuation of mild temperatures, kept a lid on upside throughout the week. While it appears colder temperatures are on the horizon in March, for now, it seems that natural gas bears may have weather on their side despite US working gas storage (1.76Tcf) being ~20% below its five-year average.
Stocks that Popped
- Whiting Petroleum (WLL) moved +21% higher after Q4 results beat expectations and the company guided for in-line 2018 production and below-consensus CAPEX.
- Chesapeake (CHK) popped +13% after announcing strong Q4 results and its intention to execute large asset sales to improve its balance sheet.
- Noble Energy (NBL) +15%, Cabot Oil & Gas (COG) +1%, Gulfport (GPOR) +12%) all announced buyback programs that drove shares higher.
Stocks that Dropped
- Apache (APA) fell -6.2% after reporting disappointing 2018 production growth, and the street increased its focus on the CAPEX required to develop the company's Alpine High play.
- Devon (DVN) fell -10.2% after reporting below-consensus 1Q2018 production guidance and indicating that it would (as opposed to NBL, COG, and GPOR) prioritize development spending vs. returning capital to shareholders.
- SLCA fell -18% and dragged other frac sand names with it after announcing disappointing volumes and discussing the potential for contribution margin degradation throughout 2018.
The Week Ahead
Earnings results will drive the energy complex on Monday and Tuesday with >25 names expected to report (see below for detail), while weekly inventory reports, the end of month EIA-914 report (updated US production numbers for Dec.) and OPEC production forecasts could also provide catalysts throughout the rest of the week.
I will be keeping a very close eye on Cushing inventory figures, as a continuation of the drawdowns seen over the past few weeks, combined with falling Venezuelan imports, could be the precursor to a heavy crude shortage along the Gulf Coast, which could develop into a major headwind for Texas-focused E&Ps.
- Monday: EIA Electric Power Monthly Report, Cushing Stockpile estimate (Genscape)
- Tuesday: API Inventories Report
- Wednesday: DOE Weekly Report
- Thursday: EIA Natural Gas Storage
- Friday: Rig Count, CFTC Report (Commitment of Traders data)
- Monday: Sanchez (SN), Comstock Resources (CRK), Kosmos Energy (KOS), Emerge Energy Services (EMES), Independent Contract Drilling: (ICD), Carrizo Oil & Gas (CRZO), PDC Energy (PDCE), Basic Energy Services (BAS), Key Energy Services (KEG), California Resources Corp. (CRC), Centennial Development (CDEV), Keane Group (FRAC), Delek US (DK)
- Tuesday: Ensco (ESV), Frank's International (NYSE:FI), Linn Energy (LNGG), EOG Resources (EOG), Range Resources (RRC), Nabors (NBR), Oasis Petroleum (OAS), RSP Permian (RSPP), Callon Petroleum (CPE), Bill Barrett (BBG), Extraction Oil & Gas (XOG)
- Wednesday: Rowan Companies (RDC), Tetra Technologies (TTI), QEP Resources (QEP), Halcon Resources (HK), Eclipse Resources ECR, SilverBow Resources (SBOW)
- Thursday: Goodrich (GDP), Southwestern (SWN)
- Friday: N/A
Disclosure: I am/we are long RSPP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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