August has historically been brutal for oil and gas stocks. According to data from Schaeffer Research, the energy sector has consistently underperformed in August, with returns turning negative in 8 of the last ten years.
Oilfield services companies were one of the biggest culprits, with Baker Hughes (NYSE: BKR), Schlumberger NV (NYSE: SLB) en Haliburton Co (NYSE: HAL) with one of the ten worst performing of the sectors in all sectors with average returns of -7.45%, – 6.31% and -6.10%, respectively.
Meanwhile, one of the top players in Eagle Ford’s skulls, Apache Corp. (NYSE: APA), ended the list of shame with an average return of -6.17% in the past 10 August.
This year, however, is looking for that trend.
The favorite benchmark of the energy sector, the Sector Fund for Energy Selection (XLE), has been up almost 10% since the beginning of the month and almost + 12% for the past 30 days. Apache leads the rally package, winning 22% after posting decent Q2 results during its latest call for revenue and announcing a major find in its offshore Suriname outlook.
The last leg up by oil stocks came after the Energy Information Administration (EIA) reported two consecutive weeks of enormous raw drawings. This, coupled with growing hopes for another stimulus package, have raised hopes that the large supply overhang that has shrunk oil markets could finally be in the rearview mirror. Related: Iranian oil exports much higher than official data suggests
Source: Yahoo Finance
Source: CNN Money
Big Crude Draws
Last week, the EIA reported that crude oil inventories for the week ended July 31 ended with 7.4 million tons contracted with the American Petroleum Institute which reported an even larger draw of 8.587 million tons. Analysts expect a much smaller inventory of 3.267 million barrels for the time frame.
The surprise surprise followed another week of a bigger draw than expected. Last week, the EIA announced a drop of 10.6 million barrels in raw inventories, marking the largest drop in more than six months.
As expected, oil prices have responded positively to these developments: WTI is trading at $ 42.36 / barrel, a level that last touched in early March, while Brent crude traded at a five-month high of $ 45.20. Related: Equinor Shakeup Urgent To Get Away From Oil
The larger raw drawings are an encouraging sign that recovery in oil demand is on the right track.
But before the bulls can start with a victory leg, there are a few worrying signs and data points that suggest that this brand still has a long way to go from the wood.
Weak refining margins
Despite the large raw materials, a build-up in distilled inventories as well as refining margins that remain a long way from their pre-crash levels means that the oil outlook remains shaky at best.
The EIA reported a 700,000-barrel build in gasoline inventories for the week ending July 24, a reversal of the 1.8-million-barrel mark a week earlier. The energy watchdog also reports an increase in an inventory of half a million barrels in distillate fuels, compared to a 1.1 million barrel inventory for the previous week.
However, the largest red flag remains persistently weak refined margins.
On Tuesday, the CME Group cited gasoline crack spreads at just $ 9.57 / barrel, up about half of its February average. Crack spreads represent the economy of refining raw materials in their various parts and are a good barometer of real-time demand for fuel. Despite a slow recovery of economies, the global air industry – one of the largest consumers of oil – remains very weak.
The EIA reported that although U.S. airline passenger traffic doubled from May levels in June, it was still 80% below the corresponding period of last year. Reuters also reported that demand for fuel had been reversed by the economic powerhouse of Asia, India, slipping 21% Y / Y in July and 13% compared to a year ago, after making an encouraging recovery. India is one of the countries hardest hit by the pandemic, with nearly 2 million infections and recurrent infections prompting new lockdowns and fears that other parts of the world could soon follow.
Then there is the big question of whether OPEC’s production cuts will relax too soon.
Earlier this month, OPEC cut its historic production margins by about 2 million barrels / day to 7.7 mb / d. But as BNP Paribas’ head of commodity strategy Harry Tchilingurian told Bloomberg, there are real concerns that emerging OPEC + production could coincide with an uneven recovery in oil demand as India has just shown us.
It is indeed a precarious situation with OPEC + that falls the risk victim for its own success.
But then again, uncertainty is the new normal in this market, making the bottom of one of the worst oil crises in modern history a crossroads.
By Alex Kimani for Oilprice.com
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