NEW YORK (MarketWatch) - Shares of oil producer and services firms fell sharply with the broad market Thursday on a greater-than-expected rise in petroleum inventories and the worst dip in U.S. industrial activity since 1974.
Oil futures fell below $70 a barrel for the first time in at least a year, adding to the selling pressure.
Natural gas shares, however, managed to post shallower losses than the rest of the sector, partly on speculation of possible deal-making in the space and a less-than-expected rise in natural gas stockpiles. See Futures Movers.
Natural-gas inventories rose by 79 billion cubic feet for the week ended Oct. 10, the U.S. Energy Department said Thursday. Analysts at Global Insight expected a climb of 85 billion.
Petroleum stockpiles rose by 5.6 million barrels for the week ended Oct. 10, greater than the forecast of 3.1 million barrels in a survey by Platts.
Meanwhile, the output of the nation's factories, mines and utilities plunged 2.8% in September, the Federal Reserve said Thursday. This is the biggest decline in output since December 1974. The figures were weaker than forecast.
The Amex Oil Index fell 6% to 759, close to its 52-week low of 745 on Oct. 10. The Philadelphia Oil Service Index dropped 5% to 135. The Amex Natural Gas Index fell 1.9% to 337.
Meanwhile, crude oil prices fell $2.29 to $72.25 after dipping below $70 a barrel for the first time since August of 2007.
Among stocks in the spotlight, Chesapeake Energy Corp. is in talks with BP to sell natural gas exploration properties, The Wall Street Journal reported. The deal could mark the beginning of a trend of cash-rich energy companies like the oil majors buying up assets from cash-strapped energy firms. Shares of Chesapeake managed to hold onto a gain of 1% to $16.52. Separately, Chesapeake said it closed a new credit line worth up to $750 million.
Peabody Energy Corp. rose 11% to $26.86 after the coal giant beat Wall Street's earnings target and raised its outlook. See full story.
Encore Acquisition Co. rose 13% to $21.47 after it OK'd a $50 million stock repurchase program and said about $617 million remains under an existing credit facility. Any proceeds from the sale of non-core properties are earmarked for debt reduction.
Chevron dipped 6% to $56.16. The oil major said it will report third-quarter earnings above the second-quarter level of $2.90 a share. Analysts surveyed by FactSet expect earnings of $3.25 a share for the company. Chevron continues to move ahead with plans to spend $6 billion on projects in Asia, despite the credit crunch.
"Despite their recent decline with the rest of the market, many of the majors have very strong balance sheets and excellent cash positions and should be able to better handle the volatility and credit tightness currently damaging many firms," Brian Niemiec of Susquehanna Financial.
Schlumberger will kick off the third-quarter earnings season for oil drillers on Friday. Shares dropped 6% to $51.04.
Analysts at Tudor, Pickering & Holt noted that Wall Street will likely dismiss third-quarter results as largely irrelevant given the impact of the financial crisis since Oct. 1.
"Expect laser focus on any signs of business softening, likely action plan for softer 2009 market, use of capital, balance sheet issues and trends within backlog/long-term contracts," analysts said.
The Amex Oil Index lost 14.7% in Wednesday's mammoth sell-off, closing at 804. The Philadelphia Oil Service Index declined 16.6% to 142. The Amex Natural Gas Index dropped 15% to 343.3.
