Macquarie: Oil & Gas- Brent premium to WTI near two-year high; equities up WoW

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Oil & Gas Atlas
Brent premium to WTI near two-year high; equities up WoW
Energy Market Indices WoW Changes
⇒ S&P/TSX Energy Index: +1.2%
⇒ S&P 500 E&P Index: 0%
⇒ Oil Service Sector Index: +0.8%
⇒ UK FTSE Oil & Gas Producers Index: +1.7%
⇒ Asia Pacific Oil & Gas Producers Index: -0.9%

Weekly Market Recap
WTI crude oil hovered near US$90/bbl before settling around the US$88/bbl mark to
end the week flat. Crude oil inventories had a draw last week of 4.2mmbbl compared
to consensus estimate draw of 2.0mmbbl. Futures for February’s delivery of Brent
traded at a premium to WTI near two-year highs on rising crude supplies in Cushing.
NYMEX gas ended the week down 8% WoW as warmer temperatures hindered
expectations for gas demand despite a higher than consensus storage draw of -
135bcf vs -132bcf.
In Canada, last Thursday Canadian Natural Resources Limited reported a fire in the
upgrading area at the company’s Horizon Oil Sands facility. The fire was isolated to
the coker unit. As of last Friday, oil production from the upgrader was suspended as
an investigation into the cause of the fire was underway. A further update is
expected this week with details on extent of the damage, the estimated repair costs
and upgrader downtime. Management stated that in the interim they are looking at
the feasibility of selling diluted bitumen (dilbit), as well as running only one train.
In the US, Chesapeake Energy announced last week that it was cutting its two year
production growth target from 30–40% down to 25% in an effort to curb debt. The
company plans to reduce long term debt by 25% by raising cash through its assets
and spending less on leases.
Our Global Oil and Gas team published our 2011 Oil and Gas Outlook report last
week “Picking 2011 winners in the wake of a 2010 year-end rally” dated 5 January
2011. E&P stocks have embarked on a consistent bull run since lows reached in
August 2010. In particular, the market has shown a marked increase in risk tolerance
in 2H10, with exploration-focused producers outperforming their lower beta peers.