Amid escalating tensions in the Middle East following the devastating assault from Palestinian group Hamas on southern Israel, oil prices remained firm. WTI crude oil gained 5.92% for the week, closing at $87.69/bbl.
Following an almost two-year high inventory build the previous week, the last seven days saw a drawdown in U.S. gasoline inventories intensifying questions around supply and demand patterns in these uncertain times. Stocks of distillates also followed this trend, adding yet another layer to the evolving landscape.
Most notably on a corporate level came Wednesday's announcement that Exxon Mobil (NYSE:XOM) (XON) has taken definitive steps toward consolidation within its own sector. The oil giant confirmed it will acquire shale rival Pioneer Natural Resources (NYSE:PXD) in an all-stock deal amounting to an impressive $59.5 billion or $253 per share.
Both stocks left their mark (Exxon Mobil and Pioneer Natural Resources up +2.52% and +4.57% respectively over the week) with those in the Oil & Gas Exploration & Production sub-sector showcasing aggregated performance of 6.70%. The energy sector rebounded strongly (+4.51%), erasing a good portion of last week's losses and ending the week as the top performer among the S&P sectors.
Moreover, the rising prices of natural gas in Europe are increasingly being felt. Indeed, the price of the Title Transfer Facility (TTF), which is a European standard for gauging gas prices, escalated to more than 50 euros per MWh on Thursday, October 12. This represents a remarkable development, with an increase of over 40% from its recent low of 36 euros observed at the beginning of October, all within a relatively short timeframe.
The majority of this increase can be attributed to the unfolding conflict between Israel and Hamas, however there are additional contributing factors. For instance, operations involving a bidirectional gas pipeline transporting gas from Finland to the Baltic states during the summer (and reciprocally during winter) were terminated on Sunday, October 8 after a significant leak was detected. Although there is doubt surrounding the precise nature of the leakage the odds are high that it resulted from "external activity." An inquiry is now underway with repairs estimated to last at least five months, but it’s clear that these circumstances further intensify the already existing tensions enveloping the energy sector.
Energy ETFs have ridden the wave with the BMO (TSX:BMO) Equal Weight Oil & Gas Index ETF (ZEO) gaining 5.36% and the Ninepoint Energy Income Fund (NRGI) growing 5.34%, while the FT Wilshire 5000 Energy Index rose by 4.29% over the week.
Group Data: Energy
Index Data
Funds Specific Data: ZEO, NRGI
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