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.
The energy complex (XLE) was broadly under pressure this week, with crude recording a weekly decline and natural gas prices rising only modestly. Every part of the industry, from integrateds to oil services (OSX), traded lower as disappointing inventory and industrial production data combined to drag the complex lower. Against this backdrop, we continued to see earnings-related volatility, with only the highest-quality reports able to withstand the broader "risk-off" sentiment that drove the downside momentum in the market.
With fewer earnings announcements on the docket this week, traders will be focused on OPEC-related headlines/commentary coming out of CERAWeek in Houston, as well as inventory reports due out Wednesday. Going into this week it seems that the bulls and bears are at a standstill, as we all wait on Wednesday's inventory data to see if fundamentals have changed in the market. Given the high level of speculative positioning on the long-side (2/20 CFTC report showed a ratio of 9.88 long positions to short positions across the petroleum complex), I believe the majority of the risk is to the downside as a large inventory build could lead to an unwind of that trade and significant pressure on WTI prices.
Last Week Recap
Last week brought multiple headwinds for oil (USO), driving price down to $61.25/bbl (-3.6% from last Friday close). Headwinds included: a larger-than-expected crude build reported on Wednesday; disappointing industrial activity data out of Japan, India and China; a report showing Libya production had reached highest levels since beginning of OPEC intervention; a relatively stronger (USD - +0.2%) and the "risk-off" attitude that was pervasive in the broader equity markets. While WTI did not break below the all-important $60/bbl level on Thursday or Friday, it is important to note that on the weekly chart shown below WTI saw a bearish MACD crossover after ~6 months price appreciation. Looking at the chart below, it appears that there is a bull/bear showdown is on the horizon as the 50-day MA converges on the 200-day moving average, with fundamental data over the next few weeks set to determine the medium-term direction for crude.
Natural Gas (UNG) recorded modest gains as production, combined with a continuation of mild temperatures (despite late-week storms in NE USA), kept a lid on upside throughout the week. Dry gas production data for December 2017 released last week broke previous records, with production averaging 78.3 Bcf/d, 10% higher than December 2016. While the 8-14 day NOAA outlook shows modestly lower temperatures across much of the eastern seaboard, it seems that natural gas bears remain in control and volatility in the natural gas market will remain subdued.
Stocks that Popped
Mammoth Energy Services (TUSK) continued to move higher (~15% for the week) after announcing that its Puerto Rico electric infrastructure contract had been doubled to $1B.
Southwestern Energy (SWN) moved 12% higher after reporting better-than-expected price realizations.
RSP Permian (RSPP) finished the week up ~6% higher after announcing strong Delaware Basin well results and indicating that the company intends to be cash flow positive by the end of 2018.
Range Resources (RRC) moved 6.2% higher with better-than-expected price realizations and improved operating cost efficiencies.
QEP Resources (QEP) moved 6.2% higher after announcing it would be selling non-Permian assets and would use proceeds to fund a $1.25B buyback.
Stocks that Dropped
Sanchez Energy (SN) fell 17.6% for the week despite announcing strong Q4 production likely due to the announcement it would pay dividends in cash, which raised additional concerns about the company's focus on reducing outstanding debt.
The Week Ahead
Barring any market-moving commentary coming out of CERAWeek (agenda linked here), traders this week will be focused on the DOE Weekly Petroleum Status Report due out on Wednesday. After a relatively disappointing report that resulted in a selloff during the back half of last week, fundamentals are set to drive market action this week as well.
In addition to watching the crude inventory data, I will be keeping a close eye on gasoline inventories, after last week's report showed a ~2.5M barrel build vs. the expected 0.2M barrel drawdown. In addition to the potential shortage of heavy crude that could hamstring Gulf Coast refiners in the coming months (mentioned in last week's report), should Gasoline inventories continue to build it could prove to be a downside catalyst for WTI prices.
Monday: Raymond James Institutional Investor Conference, Genscape Cushing Stockpiles, CERAWeek
Tuesday: API Inventories Report, EIA Short-Term Energy Outlook, Chevron (CVX) Analyst Day
Wednesday: DOE Weekly Report
Thursday: EIA Natural Gas Storage
Friday: Rig Count, CFTC Report (Commitment of Traders data)
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.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.