E & P Sector continues retreat

[dan_s]

The Sweet 16 has pulled back to about where it started the year, despite much higher oil prices and solid first quarter results. The Market needs to see where crude oil prices will settle before the share prices can move higher. - Dan

From the Citi E&P Research Team:

 Week in E&P – E&P shares extended the prior week’s sharp drop by declining another ~2% for a cumulative two-week retreat of roughly 9%. The E&P sector also underperformed the broader markets despite a slight rebound in oil prices. Following the nearly 15% plunge the prior week, WTI spot oil prices rose 2.5% last week to ~$100/Bbl, while Brent was higher by 4.5% to ~$114/Bbl. However, most of the data along the crude price front was bearish last week with the Paris-based International Energy Agency (IEA) reducing its 2011 global crude oil demand growth forecast, data revealing that industrial output in China slowed during April, and the weekly U.S. crude plus product inventory report showing a larger-than-consensus build in crude and gasoline stocks – crude and gasoline inventories increased by 3.8 MMBbls and 1.3 MMBbls (consensus was +1.6 MMBbls and -0.3 MMBbls), respectively, while distillate stocks declined 0.8 MMBbls versus consensus forecasts for a slight increase. Last week’s inventory data was for the prior week and thus didn’t yet reflect the impact of flooding in the Mid-West which has led to some refinery outages. Meanwhile, after declining nearly 10% the prior week, the near-month NYMEX natural gas futures contract was nearly flat ending the week at $4.25/MMBtu although the composite spot cash price dropped 7.2% to $4.09/MMBtu due largely to mild weather across much of the country. Last week we upgraded Rosetta Resources (ROSE) to Buy from Hold following its first quarter earnings results. This week Apache Corp. (APA) will host an analyst meeting in New York City on Tuesday, May 17th. Also, Canadian Natural Resources will host an analyst days in Calgary on May 17th and in New York City on May 19th.