Energy Sector: What Happened between May 30 and June 2?
US oil production impacted oil prices
Market concerns about rising US crude oil production sent oil prices (USL) lower between May 26, 2017, and June 2, 2017. During this period, US crude oil July futures fell 4.3% and settled at $47.66 per barrel on June 2, 2017. The global benchmark, Brent crude oil active futures fell 4.2% during this period and closed at $49.95 per barrel on June 2, 2017.
On June 2, 2017, US crude oil active futures were 4.7% above their 2017 lows. However, rising oil rigs could send oil prices to new lows. The oil rig count rose by 11 compared the previous week. The rig count was at 733 for the week ending June 2, 2017.
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Natural gas fell
Bearish drivers such as mild summer weather forecasts and natural gas inventories above market expectations sent natural gas (UNG) (GASL) July futures prices to $3 per million British thermal units on June 2. Prices fell 9.4% between May 26 and June 2, 2017.
Rising oil rigs could increase bearish bets on natural gas prices. President Trump exiting the Paris climate agreement could hit the share of natural gas in power generation. The exit could also increase the fuel supply—bearish for the commodity.
Broader markets and energy commodities diverged
On June 2, 2017, the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DJIA) reached record highs despite the downturn in energy commodities. Both of the indexes have some weight in the energy sector. The S&P 500 Index rose 1%, while the Dow Jones Industrial Average rose 0.6% between May 26, 2017, and June 2, 2017.
Below are the performances of major energy ETFs between May 26, 2017, and June 2, 2017.
- The Alerian MLP ETF (AMLP) fell 2.1%.
- The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 4.7%.
- The Energy Select Sector SPDR ETF (XLE) fell 2.3%.
- The VanEck Vectors Oil Services ETF (OIH) fell 1.7%.
Below are the top gainers and losers in the energy sector between May 26, 2017, and June 2, 2017. These companies are part of XOP, XLE, OIH, and AMLP.
Denbury Resources (DNR) and Southwestern Energy (SWN) were both among the top five losers in the energy sector between May 26, 2017, and June 2, 2017. Denbury Resources operates with a production mix of more than 60.0% in crude oil. The company has a high correlation with crude oil.
On May 30, 2017, Denbury Resources announced that it will gain 23% non-operated working interest from Linn Energy’s specific subsidiaries. The acquisition could help Denbury Resources increase its production by 2,100 barrels per day.
Southwestern Energy operates with a production mix of at least 60.0% in natural gas. A possible mild summer could impact the stock’s future earnings prospects.
Tidewater (TDW) gained the most in the energy sector between May 26, 2017, and June 2, 2017. Tidewater rose 2.8% despite a fall of 1.7% in the VanEck Vectors Oil Services ETF (OIH) during this period. On May 17, 2017, Tidewater announced that it filed a petition for bankruptcy. Since May 17, 2017, the stock fell 10.5%.
Royal Dutch Shell (RDS.A) started operations on the FPSO (Floating Production Storage Offloading) P-66 in the Lula South field, Santos Basin, Brazil. It’s the company’s tenth FPSO in terms of working interest in the Compos and Santos basins. Shell also operates two other FPSOs, the BC-10 and the Bijupirá and Salema, in offshore Brazil. The Brazilian offshore is a vital part of Shell’s strong upstream portfolio.
The above chart shows important events in the coming week.