Oil prices post a loss as EIA reports first weekly U.S. crude-stock climb in 7 weeks


Oil prices posted a loss on Thursday after U.S. government data revealed a weekly climb in U.S. crude inventories, on the heels of six consecutive weeks of declines, raising expectations of an oversupplied market as uncertainty continues to surround the outlook for demand.

The Energy Information Administration reported Thursday that U.S. crude inventories rose by 2 million barrels for the week ended Sept. 4—the first weekly rise in seven weeks. Total U.S. crude inventories, excluding those in the Strategic Petroleum Reserve stood at 500.4 million barrels, about 14% above the five-year average for this time of year.

That compared with an average forecast by analysts polled by S&P Global Platts for a fall of 500,000 barrels. The American Petroleum Institute on Wednesday reported a climb of 3 million barrels, according to sources. The supply reports were each delayed by a day due to Monday’s U.S. Labor Day holiday.

U.S. refiners took an even bigger hit than expected from Hurricane Laura, which made landfall in late August on the U.S. Gulf Coast, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. The EIA reported a big drop of 1.1 million barrels per day in crude refinery runs for last week, leading to the first domestic crude-stock build in weeks, he said.

On Thursday, West Texas Intermediate crude for October delivery
CL.1,
-2.52%

CLV20,
-2.52%

 on the New York Mercantile Exchange fell 75 cents, or 2%, to settle at $37.30 a barrel. November Brent crude
BRN.1,
-0.39%

 
BRNX20,
-0.39%
,
the global benchmark, lost 73 cents, or 1.8%, to reach $40.06 a barrel after a 2.5% gain in the previous session.

Read:Volatility in oil and gold may offer more opportunity than risk

Oil futures finished higher Wednesday, with U.S. prices reclaiming less than half of the more than 7% drop suffered in the previous session though worries over the demand outlook, driven by the pandemic, continued to limit crude’s upside potential.

Thursday’s EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by about 1.9 million barrels for the week, while total domestic oil production climbed by 300,000 barrels to 10 million barrels per day.

Gasoline supply, meanwhile, fell by 3 million barrels, while distillate stockpiles declined by 1.7 million barrels. The S&P Global Platts survey had shown expectations for a supply decline of 2.5 million barrels for gasoline, but distillates were expected to rise by 300,000 barrels.

On Nymex, October gasoline
RBV20,
-2.40%

 shed 1.9% to $1.0977 a gallon, while October heating oil
HOV20,
-2.48%

 settled at $1.0824 a gallon, down 2.1%.

The market is in the “midst of refinery maintenance season, which inherently causes a drop in refinery runs and ultimately finished products supplied,” a proxy for demand, said Tyler Richey, a co-editor at Sevens Report Research.

“If we don’t see those demand metrics recover to where they were prior to Hurricane Laura’s landfall, then it will be very difficult for oil to revisit the recent highs in the low-mid $40s, especially given the global supply side uncertainties regarding OPEC+’s next policy moves,” he told MarketWatch.

On Sept. 17, the Organization of the Petroleum Exporting Countries and its allies, which form a group known as OPEC+, will hold a market-monitoring meeting. The group in August trimmed supply cuts from earlier this year on hope of improved demand amid the pandemic.

OPEC+ oil production climbed by 1.71 million barrels a day to 34.63 million barrels a day in August from a month earlier, according to an S&P Global Platts survey released Wednesday.

Also Wednesday, in a monthly report, the EIA lowered its 2021 growth forecast for global consumption of petroleum and liquid fuels by 500,000 barrels per day from its August forecast, to about 99.6 million barrels a day, even as it raised its 2020 forecasts for WTI and Brent crude-oil prices, natural-gas prices, and U.S. crude production.

Read:How a big decline in China’s oil imports may ‘test the resiliency of the market’

Rounding out action on Nymex, prices for the October natural gas contract
NGV20,
-3.78%

 settled at $2.323 per million British thermal units, down 8 cents, or nearly 3.5%.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet for the week ended Sept. 4. That was a bit higher than the increase of 64 billion cubic feet forecast by analysts polled by S&P Global Platts.



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EOG Resources – Buy This Leading American Oil Producer (NYSE:EOG)


EOG Resources (NYSE: EOG) has an impressive portfolio of assets as a leading American oil company. The company is focused on increasingly high margins with its impressive portfolio of assets. The company plans to turn that strong financial rewards. That continued performance makes EOG Resource a quality investment.

EOG Resources – The Motley Fool

EOG Resources Premium Asset Profile

EOG Resources has a premium asset portfolio that supports the company’s continued cash flow generation.

EOG Resources Wells – EOG Resources Investor Presentation

EOG resources has a massive portfolio of premium wells with 10500 premium wells. The company has 4500+ premium wells with a 30%+ return at $30 WTI. Overall, the company has a 58% median rate of return at $40 WTI as it continues to drill these wells. With WTI back over $40, the company’s entire portfolio has the potential for exciting returns.

The company has reduced its finding and development costs to less than $8 / barrel and improved its capital efficiency to $30 thousand / barrel per day added. That implies a 3-year payoff for new production. The company’s capital spending has declined significantly and the company is well positioned to generate strong shareholder returns.

EOG Resources Premium Financial Results

These strong assets point towards the ability to provide premium financial results.

EOG Premium Drilling – EOG Investor Presentation

The improvements in the company’s portfolio is clearly visible above. The company went from 37% annual growth from 2012-2014 to 17% growth per year from 2017-2019. However, in exchange, the company managed to earn $4.6 billion in FCF paying off $1.9 billion in debt and $1.4 billion in dividends. That’s a near 3.5% annualized dividend.

The company earns a 14% ROCE at $58 oil, with continued growth in its business. The company has cut its capital spending significantly and should be able to continue performing well. The company’s maintenance capital is $3.4 billion and the company had $200 million in FCF in 2Q 2020. Continued FCF means continued shareholder returns through a downturn.

EOG Resources 2020 Results and Outlook

EOG Resources has more than 10 billion barrels of resource potential that it is continuing to derive value from.

EOG Resources Quarterly Production and Outlook – EOG Resources Investor Presentation

EOG Resources had 1Q 2020 production at more than 480 thousand barrels / day, where shut-in volume pushed it to 330 thousand barrels / day in 2Q 2020. The company plans to move back towards 440 thousand barrels / day by 4Q 2020. Going forward into 2021, with the company’s $0.85 billion / quarter in sustaining capital, production should remain constant.

The strength of the company’s business is that at <$40 WTI will support maintenance capital spending and its 3.5% dividend. That's below current oil prices. Past that, each $1 / barrel means another $40 million in FCF quarterly. With a $25 billion market capitalization, a $10 / barrel improvement means $1.6 billion in annual FCF at $50 WTI post dividend.

That means that at $50 WTI the company can provide double-digit shareholder rewards. Past that, going into prices such as 4Q 2019, the company provide much higher shareholder rewards.

EOG Resources Potential

Long-term, EOG Resources has significant potential to reward shareholders.

had $

EOG Resources Margins – EOG Resources Investor Presentation

The company had $11.19 in composite average margins per barrel in 2019. For U.S. production that means $1.8 billion at current prices but the 2Q 2020 production run-rate. Switching to 2018 levels, that means $2.7 billion at those realized prices. That’s a double-digit realized yield, which is the ability to generate strong returns for shareholders.

The company has strong ability to generate rewards from shareholders through this. That helps support long-term shareholder rewards. EOG Resources has $5.7 billion in long-term debt, an incredibly manageable level for the company. From 2017-2019 the company averaged $1.6 billion in annual FCF.

As it cuts capital spending from its $5.6 billion annually to $3.4 billion that’s a $2.2 billion in annual FCF increase. Fifty thousand less high cost barrels means $750 million less. The company will be able to earn $3 billion in annual FCF and generate double-digit shareholder rewards for those that who take the opportunity to invest today.

EGO Resources Risk

EOG Resource’s risks continue to be the same risks that all major oil companies face. The company’s risk is the risk of longer term oil price declines if COVID-19 re-surges. So far, that’s appearing not to be a risk, especially with continued work on a vaccine, potentially by the end of the year. However, it could always come back.

Conclusion

EOG Resources has an impressive portfolio of assets. The company has a massive portfolio of impressive assets with more than 10 billion barrels of assets and >4500 wells with a 30+% return at $30 WTI. The company plans to reduce sustaining capital to $3.4 billion with a roughly 10% decline in production.

Going forward, we expect the company to generate significant FCF. After removing high cost production, the company has the ability to earn $3 billion in FCF assuming prices return to the old 2017-2019 average. That’s a double-digit FCF yield at normal prices and it highlights th strength of the company’s overall portfolio.

The Energy Forum can help you generate high-yield income from a portfolio of quality energy companies. Worldwide energy demand is growing and you can be a part of this exciting trend. 

Also read about our newly launched “Income Portfolio”, a non sector specific income portfolio. 

Image result for high yield oil

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Disclosure: I am/we are long EOG. 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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U.S. tech selloff hits equities, oil falls on demand worry By Reuters


© Reuters. People wearing protective masks, following the coronavirus disease (COVID-19) outbreak, are reflected on a screen showing stock prices outside a brokerage in Tokyo

By Stanley White and Jessica DiNapoli

TOKYO/NEW YORK (Reuters) – Asian shares fell on Wednesday and oil prices hit lows not seen since June after a rout in technology shares sank Wall Street for a third consecutive day and a major drugmaker delayed testing of a coronavirus vaccine.

MSCI’s broadest index of Asia-Pacific shares outside Japan () slid 1.06%. Australian stocks () dropped 2.47%, while shares in China () fell 1.53%. Japan’s Nikkei () skidded 1.12%.

U.S. S&P 500 E-mini stock futures () erased losses and rose 0.25%, white Nasdaq futures () also rose 0.83%.

Euro Stoxx 50 futures () were down 0.03%, German DAX futures () fell 0.14%, and futures () fell 0.29%.

Sentiment for equities and other risky assets also took a hit after AstraZeneca Plc (L:) paused a late-stage trial of one of the leading COVID-19 vaccine candidates due to an unexplained illness in a study participant.

Treasury yields extended declines as investors sought the safety of holding government debt. Risk aversion also pushed the yen to a one-week high against the dollar.

A sell-off in high-flying U.S. technology shares, fueled partly by concerns about excess purchases of call options, has increased the risk of a larger correction across other markets.

“The performance of Wall Street is going to leave a heavy residue, and most noteworthy is how the tech names dropped down quite aggressively. Investors will take a close note of that,” said Tom Piotrowski, a markets analyst at Australian broker CommSec.

“The dramatic fall in oil prices in the last day is being seen as a proxy for global growth expectations. That 7.6% fall will certainly be resonating.”

The Dow Jones Industrial Average () fell 2.25%, the S&P 500 () lost 2.78%, and the Nasdaq Composite () dropped 4.11% on Wall Street on Wednesday.

Among U.S. technology names, electric-car maker Tesla (O:) plunged 21.06% on Tuesday, its biggest daily percentage drop, after it was excluded from a group of companies being added to the S&P 500.

SoftBank Group Corp (T:) shares fell 3.64% on Wednesday due to worries about the Japanese conglomerate’s trading in call options on U.S. tech stocks.

SoftBank has fallen around 12% since sources told Reuters and other media late last week that it built up stakes in major U.S. tech companies worth around $4 billion and bought a similar amount of call options for the underlying shares.

Counterparties who sold the call options to SoftBank would have to hedge their exposure by buying the underlying shares, which likely contributed to the Nasdaq () and S&P 500 () reaching record highs only days ago, some traders say.

Options are pricing in bigger market swings from Sept. 16 to Oct. 16, according to one investor.

The U.S. Federal Reserve’s next meeting ends on Sept. 16, which could have a big impact on stock markets because many analysts say excess liquidity created by the Fed has contributed to rising equity prices this year.

U.S. 10-year Treasury yields () fell to 0.6690%, while the yield curve between two-year and 10-year notes flattened slightly, highlighting declining appetite for risk.

The British pound fell to six-week lows against both the dollar and the euro.

Escalating concerns over Britain leaving the European Union without a trade agreement are weighing on sterling.

The () against a basket of six major currencies stood near a four-week high as Wall Street’s sell-off and renewed fears about Brexit boosted safe-harbour demand for the greenback.

Oil futures extended their sharp decline to the lowest levels since June due to concern about weak global energy demand and excess supply.

Brent () fell 0.63% to $39.53 a barrel, while U.S. crude () lost 0.73% to trade at $36.49.





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Asian shares start cautiously amid elevated valuations, oil skids By Reuters


© Reuters. People wearing protective masks, following the coronavirus disease (COVID-19) outbreak, are reflected on a screen showing stock prices outside a brokerage in Tokyo

By Swati Pandey

SYDNEY (Reuters) – Asian shares started Monday on the backfoot as investors grapple with sky-high valuations against the backdrop of a global economy in the grip of a deep coronavirus-induced recession while oil prices dropped sharply.

was down 0.4% ahead of a heavy week of macroeconomic data with figures on household spending, current account and gross domestic product due on Tuesday.

Some analysts expect a fresh dose of fiscal stimulus in the country before the year-end while predicting ‘Abenomics’ will be retained even after Japanese Prime Minister Shinzo Abe steps down from the helm.

Australian shares slipped 0.4% while South Korea and New Zealand’s benchmark index were off 0.1% each.

That left MSCI’s broadest index of Asia-Pacific shares outside Japan barely changed after two straight days of losses toppled it from a 2-1/2-year peak last week.

World shares hit a record high last week as central bank stimulus drove asset valuations to heady levels. The rally cooled late last week as tech stocks sold off while worries over patchy economic recovery dogged investors.

The immediate focus on the day will be on China’s exports and imports data for August, due later in the morning.

China’s exports are expected to have posted a second month of solid gains in August as more of its trading partners relaxed coronavirus lockdowns and reopened their economies, a Reuters poll showed.

U.S. stock futures opened in the red, with E-minis for the S&P 500 down 0.3% and Nasdaq futures sliding 1.1%. U.S. markets will be closed on Monday for Labor Day.

Nasdaq futures were dragged lower by the exclusion of Tesla (NASDAQ:) from a group of companies that were being added to the S&P 500.

Analysts at Jefferies (NYSE:) expect the equities market correction to extend further.

“Our risk indices have begun to turn from their euphoria highs,” Jefferies said.

“It is not unthinkable that global equities are set to churn in a range for a while as some of the orphan sectors/countries are refranchised while the richly valued sectors pause or unwind,” it added.

“On the balance of probabilities, last week’s correction has further room to go.”

Jefferies said it was switching its weighting on MSCI All World index to “tactically bearish” in the short term.

It noted that a gauge of volatility has nudged higher in the past three months alongside a steepening in U.S. 10-year to 5-year Treasury yield curve as well as the 30-year to 5-year curve.

“We wonder how much moves in both would upset the equity market,” Jefferries said.

Later this week, investors will look for data on U.S. inflation with both producer and consumer prices expected to remain mostly steady.

“With slack in the labor market and broader economy to remain for years, it’s hard to see where sustainably higher inflation will come from,” Brown Brothers Harriman said in a note.

“That said, the bottom line is that U.S. rates will stay lower for longer. Full stop.”

In commodities, oil prices dropped more than $1 a barrel, hitting their lowest since July, after Saudi Arabia made the deepest monthly price cuts for supply to Asia in five months.

Fading optimism about demand recovery amid the coronavirus pandemic also weighed. fell 2% to $38.97 a barrel. skidded 1.9% to $41.85.

Policy meetings at the Bank of Canada on Wednesday and the European Central Bank (ECB) the following day are also on investors’ radar, with both expected to keep policy steady.

Action in the forex market was muted.

In currencies, the dollar was flat against the yen at 106.27 while the euro held at $1.1838.

The British pound was a shade weaker at $1.3248 ahead of a new round of Brexit talks with the European Union on Monday.





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Oil prices on track to settle at lowest since July on prospects for weak demand


Oil futures declined on Thursday, with prices for the U.S. and global crude benchmarks on track to mark their lowest settlements since July as concerns remained over the outlook for demand.

The Energy Information Administration on Wednesday reported a hefty, 9.4 million-barrel weekly drop in U.S. crude supplies, along with a fall of 4.3 million barrels in gasoline inventories, but the data also “showed a hit to demand, and the reduction in inventories is being attributed to a Hurricane Laura once-off drop,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

Over the past four weeks, the amount of gasoline product supplied, a proxy for demand, was down 8.9% for the same period last year. For distillate fuels, which include heating oil, it was down 5.1%, and for jet fuel product, it was down 47.1%, the EIA reported.

Meanwhile, oil production in the Gulf of Mexico region has seen a significant recovery since the hurricane made landfall on Aug. 27. The Bureau of Safety and Environmental Enforcement on Wednesday estimated that 19.9% of the current oil production in the Gulf of Mexico was shut in, rebounding from about 84% around the time Laura reached the Gulf Coast.

West Texas Intermediate crude for October delivery
US:CL
US:CLV20
on the New York Mercantile Exchange dropped 94 cents, or 2.3%, to trade at $40.57 a barrel. November Brent
UK:BRNX20
UK:BRN
, the global benchmark, declined $1.07, or 2.4%, to $43.36 a barrel on ICE Futures Europe. Settlements around the current levels for both benchmarks would mark the lowest for front-month contracts since late July.

Traders looked to the latest U.S. economic data for hints on the outlook for energy demand. On Thursday that data were mixed, with a decline in weekly jobless claims and a jump in the trade deficit in July. A closely followed index of non-manufacturing companies — retailers, banks, airlines, health-care providers and the like — fell in August.

A rebound by the U.S. dollar has also limited the upside for commodities. Oil had previously found support as the ICE U.S. Dollar Index
US:DXY,
a measure of the U.S. currency against a basket of six major rivals, fell to a more-than-two-year low earlier in the week, but it now trades around 0.5% lower for the week so far.

“The macro picture has started to send more mixed signals to the oil market, with strength in equity markets more and more concentrated on a few indices/industries, key government bond interest rates trending lower and the U.S. Dollar index in rebound mode after the EUR/USD exchange rate hit the $1.20 level two days ago,” wrote analysts at JBC Energy, in a note.

A stronger dollar can pressure commodity prices, making them more expensive to users of other currencies.

Weakness in oil prices was also attributed to a report by Bloomberg that Iraq may seek a two-month extension to its deadline for implementing additional production cuts as part of the OPEC+ agreement. Iraq and other countries that had overproduced their quotas earlier this summer, are required to make deeper cuts to compensate.

However, Iraq later denied reports that it wanted a waver on cuts,” and instead said its committed to the cuts, said Flynn.

On Nymex, October gasoline
US:RBV20
fell 1.6% to $1.1834 a gallon, while October heating oil
US:HOV20
declined 3.7% to $1.1449 a gallon.

October natural gas
US:NGV20
rose 2.3% to $2.545 per million British thermal units.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 35 billion cubic feet for the week ended Aug. 28. That was generally in line with the increase of 34 billion cubic feet forecast by analysts polled by S&P Global Platts.



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