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Oil Posts Large Weekly Gains In News Driven Market

Oil prices staged a strong rally on Thursday, moving up 3% for the sixth straight day of gains. Brent hit an eight week high on news that the world’s biggest producers are prepared to discuss a possible freeze in production levels.

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Friday, August 19, 2016

West Texas Intermediate (WTI) crude futures were up $1.43, or about 3.1% percent on Thursday to $48.22 a barrel. That price brings black gold back to highs last seen in early July. Both Brent and WTI have risen more than 20 percent off of their August lows. That resurgence in price has followed news that OPEC and other key exporters may discuss freezing output levels during the OPEC meeting in Algeria in September.

Freezing production at current levels may not be enough to keep prices at present levels according to some analysts. Saudi Arabia has indicated that it could boost crude oil supplies in August to a new record as the Kingdom continues its rivalry with Iran, even as it prepares to discuss output levels with other producers. That behavior would likely undermine freeze talks before they even begin. "The latest news from Saudi Arabia is not price supportive at all," Carsten Fritsch, senior oil and commodities analyst at Germany's Commerzbank, said, "This is a double whammy for the oil market. A test of the lows of early August is quite possible." Analysts at Citi also warned of the risk to the current rally given the failure of talks earlier this year on freezing crude output levels. "OPEC cooperation hopes should be treated with caution, as this is shaky ground to base a bull rally on," the bank said.

Williams Cos. Stock up on takeover rumors: Williams Cos. Jumped on a report that Enterprise Product Partners approached it this summer with an acquisition bid – WMB was initially higher by more than 11% following the report before settling out on Thursday up nearly 8%. Williams didn't make an official response, Reuters says, due to recent gains in its stock. Enterprise reportedly remains interested in a deal.

Signs of Upside in Coal and Railroads: Following meetings with Union Pacific management, Morgan Stanley says coal and agricultural shipments are looking stronger. The upturn in those areas would benefit UNP and peers with sector exposure as cargo-volume growth would be immediately profitable due to current excess capacity. "While visibility remains low, management expressed confidence that any volume rebound in 2017 would likely come with strong incremental margins and minimal service disruption." The bank says that utility stockpiles remain large but are improving and that growth in coal shipments could arrive by 1H2017.

GE Bullish on Coal: GE leaders believe they can lock in decades of low-risk profits from existing coal power plants including installing upgrades that are required due to slowly tightening emissions rules as well as those that help utilities boost output. GE also sees potential from coal facilities construction in developing economies. General Electric has been promoting natural gas use for years on the assumption that coal's future was challenged by environmental and cost issues. With demand for coal rising in India and Southeast Asia, GE is bullish about coal again, WSJ reports.

BP Looks to Revamp Pay Policies: Sky News reports that BP is reaching out to top investors on a new boardroom pay policy for the firm. That move follows a humiliating revolt this year that saw a majority of shareholders vote against a £14M package for its chief executive. Precise details of the plans are unclear, but it is likely that BP's remuneration committee chairman, Dame Professor Ann Dowling, wants to avoid a repeat of the debacle that put Bob Dudley's pay deal into the headlines in April.

Continental Sheds Assets: In a press release, Continental Resources announces it has sold non-strategic properties in North Dakota and Montana for $222M. The undisclosed buyer picked up 68K net acres of leasehold primarily in western Williams County, North Dakota, and 12K net acres of leasehold in Roosevelt County, Montana. The sale also includes net production of approximately 2.8K barrels of oil equivalent per day. "This is our third sale of non-strategic assets this year, with total expected proceeds of more than $600 million. We plan to apply proceeds to reduce debt and strengthen our balance sheet," said CEO Harold Hamm. The sale comes amid recent evidence of a thaw in the previously frozen market for oil field assets.

American Electric Power bets on renewables: According to a press release, American Electric Power is looking to add more renewable energy to its mix, putting out a Request for Proposals to buy wind assets. The company is targeting projects that will be operational by year end of 2018, in amounts up to 100 megawatts. Projects have to be interconnected to AEP’s subsidiary Southwest Power Pool, meaning they need to be located in Arkansas, Louisiana, Texas, Oklahoma, Kansas or Missouri. Through SWEPCO, AEP currently owns 469 megawatts of wind energy, and plans "significant increases in renewable energy, including wind and solar, and energy efficiency over the next 20 years."

Canadian Solar: Saw its shares spike by 17.5% on Thursday after Q2 EPS of $0.68 beats analyst expectations by $0.31. Revenue of $805.91M beat expectations by $88.44M, up 26.6% YoY.

Morgan Stanley upgrades Kinder Morgan: Morgan Stanley upgraded energy giant Kinder Morgan to Overweight and paired that move with downgrades to Magellan Midstream Partners and Dominion Midstream Partners from Overweight to Equalweight.

BWX to acquire GE Hitachi shares: BWX Technologies' subsidiary, BWXT Canada, has agreed to acquire all of the shares of the GE Hitachi Nuclear Energy Canada joint venture. The purchase essentially doubles BWXT's footprint in Canada and indicates the company sees opportunity in the Canadian nuclear market. Terms of the transaction are not being disclosed, but the deal should be accretive within the first year and will likely favorably impact margins in the Nuclear Energy Segment.

By Evan Kelly of Oilprice.com

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