Oil prices declined during week, losing the US$80/barrel level and sliding below US$76/barrel on Friday following a four day losing streak amid weakness in equity markets.
The FTSE 100 managed to stay positive on Friday, while the main stock market indexes in the US kept their losses to a minimum, however, the FTSE 100, the Dow Jones and NASDAQ all ended the week well below Monday’s opening levels after US Labor Department released more disappointing jobs figures and both the Federal Reserve and the Bank of England acknowledged that the ongoing recovery was progressing at a slow pace.
The Fed decided to leave the currently ultralow rates unchanged, while announcing that it would buy US bonds to bolster the economy. Governor of the Bank of England (BoE) Mervyn King said that recovery would be “choppy,” while the bank slashed its growth forecasts for UK economy to reflect the recently passed emergency budget that contained large scale spending cuts. As was expected, BoE also left its interest rates at the same level.
This was followed by an increase of 2,000 in initial jobless claims that reached five month highs at 484,000 as was reported by the Labor Department on Friday. Last week’s jobs data showed a decline of 131,000 in non-farm payrolls in July, while June’s job losses of 125,000 were revised upwards to 221,000.
The negative impact from the jobs report was offset by Friday’s update on the University of Michigan consumer sentiment index, which was shown to have risen to 69.6 in August from 67.8 in July. However, US retail sales rose 0.4% in July, while analysts expected an increase of 0.5%.
On top of that, China said its crude imports declined by 3.1% year on year in July to 19 metric tons, compared to 22.27 metric tons in the previous month.
Crude futures started the week at above US$81/barrel, getting support from a decline in the US dollar following the non-farm payrolls report. The EUR/USD rate nearly reached 1.33, boosting the commodities. A weaker US dollar makes the dollar-denominated crude cheaper for holders of other currencies, lifting demand.
In other news, the International Energy Agency (IEA) said that the disastrous oil spill in the Gulf of Mexico that followed the explosion of a BP leased deepwater drilling rig could curb oil supplies in the long term. The agency has estimated that offshore will be the source of 30% of total global supplies and 50% of new supplies by 2015, noting that the companies looking to develop such deposits could be dealing with increased financial liabilities and some oil rich countries were considering blanket bans on offshore drilling.
The EIA put the total declines in production resulting from the oil spill to 60,000 barrels per day this year and 100,000 barrels per day in 2011. The agency has also raised its demand for 2010 and 2011 by 80,000 barrels per day and 50,000 barrels per day respectively.
This week’s inventories reports were mixed, showing reductions in crude stockpiles along with gains in gasoline supplies. Tuesday’s data from the American Petroleum Institute (API) showed a decrease of 2.2 million barrels in crude inventories, while gasoline stockpiles shed 1.5 million barrels, signalling higher demand in the world’s largest energy consumer. More closely watched data from US Energy information Administration (EIA) that came out on Wednesday showed a decline of 3 million barrels. However, EIA said that gasoline inventories added 400,000 barrels.
September Brent Crude stood at US$75.25/barrel, while US light, sweet crude for September delivery stabilised at US$75.45/barrel on the New York Mercantile Exchange (NYMEX).
Blue chip oil and gas producers were headed in different directions this week. BP (LON:BP) retreated from 425 pence to 416 pence, fellow supermajor Shell (LON:RDSB) declined from 1,728 pence to 1,715 pence. BG Group (LON:BG) improved from 1,005 pence to 1,025 pence, and Cairn Energy (LON:CNE) rose from 460 pence to 468 pence, but Tullow Oil (LON:TLW) moved down from 1,263 pence to 1,259 pence.
Oil and gas engineering firms were in decline with Amec (LON:AMEC) dropping from 909 pence to 873 pence and Petrofac (LON:PFC) sliding from 1,302 pence to 1,291 pence.
Small Cap News
Nighthawk Energy (LON:HAWK, OTC:NHEGY) is considering legal action against ‘de-rampers’ who have been making “persistent defamatory and untrue postings” on bulletin boards, hosted on the Interactive Investor (iii) and ADVFN websites.
US operating energy junior Caza Oil & Gas (LON:CAZA TSX-V:CAZ) said the Glass Ranch disposal resulted in a 29% revenue decline in Q2, while current operational progress has remained strong with the company expecting to open up new locations and prove up large reserves.
Gulf Keystone Petroleum (AIM: GKP) confirmed that it has completed its ‘re-organisation of interests’ in Kurdistan - which see the company take full control of its operating subsidiary. Amendments to its original Production Sharing Contracts (PSC) have now been approved by the Kurdistan Regional Government (KRG) and all the other parties in each of the respective PSCs.
Shares in Caza Oil & Gas (TSX:CAZ, LON:CAZA) more than doubled in value after the group revealed it had made a potentially significant natural gas discovery in Texas.
Mediterranean Oil & Gas (LON:MOG) told investors that its Ombrina Mare project may be exempt from the Italian offshore drilling ban which comes into effect on 26 August 2010. Earlier this week, a Legislative Decree amending the Italian Environmental Code was published in the Official Journal of the Italian Republic.
Nautical Petroleum (LON:NPE) told investors that it has spudded the Kraken appraisal well on North Sea Block 9/2b, and it expects the ‘full programme’ to take 45 days to complete. The drilling work is being supported by the company’s recently announced £30m placing.
Europa Oil & Gas (LON:EOG) told investors that Dr Erika Syba - the company’s co-founder, operations director and second largest shareholder - has resigned from her position as of the 31st August 2010. "As co-founder of the company with 15 years of service Erika has contributed greatly to the development of Europa”, Europa MD Paul Barrett commented.
Oil and gas explorer BPC (LON:BPC) has said that the preliminary results of its 2D marine seismic survey over its southern licenses in the Bahamas adjacent to Cuban waters showed various possible “direct hydrocarbon indicators".
Gulf Keystone Petroleum’s (LON:GKP) on-going testing of the Shaikan-1 discovery well continues to improve what is already a major oil discovery. In its re-testing of the Mus section of the Jurassic formation, the company has demonstrated a 10-fold increase in natural flow rates to 1,250bopd (barrels of oil per day).
Xtract Energy (LON:XTR) told investors that the technical evaluation of its Sarikiz acreage in Turkey, supports the case that there is a working petroleum system and that good quality sands containing oil are present, however the subsurface reservoir geology is “proving more complex than originally prognosed”.
Westhouse Securities positively responded to a recent statement from North America focused explorer Nighthawk Energy (LON:HAWK, OTC:NHEGY), in which it announced the results of a full and independent gas reserve report of the Xenia project, a part of the largest Revere project in Kansas, by Oilfield Production Consultants Limited (OPC).
Nautical Petroleum (LON:NPE) has raised £30.35m with a placing of 24.2m shares at 125p each, to fund its planned exploration, appraisal and pre-development activity until the end of 2011.
Extract Resources’ (ASX, TSX, NSX: EXT) good news from the Rossing South uranium deposit in Namibia will have a long-term supportive effect on the shares of Kalahari Minerals (LON:KAH), according to research boutique Ambrian.
Large and Mid Cap News
Oil and gas producer and FTSE 250 constituent Dragon Oil (LON:DGO) reported a 4.9% increase in H1 revenues driven by higher oil prices and said its 2010 drilling programme was on track, as were its goals to up production by 10-15% in each of the next three years.
International oil and gas facilities service provider Petrofac Ltd (LON:PFC) said it won a US$430 million contract from Kuwait Oil Company (KOC) for the engineering, procurement and construction of effluent water and central sea water injection facilities.
Oil and gas supermajor BP (LON:BP) has said that its static kill operation aimed at plugging the Macondo well (MC252) and its cementing have been successful with pressure testing indicating an effective cement plug in the casing. IN other news, BP (LON:BP) has been dealt another expensive blow in the US, relating to compensation and penalties stemming from an explosion at the Texas City refinery. BP’s North American refining business - BP Products North America - has now agreed the settlement of 270 out of a total of 709 citations following the explosion and fire at the Texas City Refinery in March 2005 that killed 15 workers and injured 170 others.
Centrica PLC (LON:CNA) said its North American subsidiary, Direct Energy, has reached an agreement with Suncor Energy (TSX: SU, NYSE: SU), to acquire its natural gas assets in the Wildcat Hills region of Alberta for C$375 million in cash.
Oil and gas services company John Wood Group’s (LON:WG) joint venture SKSWood has secured a two year extension for one of its largest service contracts in Asia Pacific from Brunei Shell Petroleum (BSP).
A statement from Dana Petroleum (LON:DNX) threw increased uncertainty that a deal will be struck to sell the company to the Korean National Oil Corporation (KNOC). KNOC told Dana that it would not increase the level of its offer from 1,800p, “regardless of any new information” from recent and future developments.
Oil and gas explorer and developer Dana Petroleum (LON:DNX) reported the successful flow testing of the recently drilled appraisal well at the Blackbird oil field, in the UK Central North Sea.