WTI $25.32 +5.01, Brent $29.94 +$5.20, Diff -$4.62 +19c, NG $1.55 -3c
The near 20% rise in oil prices yesterday came about after conversations that purportedly took place between Trump and MbS and then MbS and Putin. The resultant tweets from The Oval Office claimed that there would be cuts in production of 10m, maybe 15m b/d to stabilise the market. Since then, Saudi media sources that they will call an Opec+ virtual meeting for Monday, a meeting at which the Russians have not yet said that they would join.
That would be a big negative if they didn’t show and this morning’s optimism would be lost in its entirety, Brent for example is currently $33.19 up 11.06%. The other cautionary point is quite what the US bring to this party, they are after all the worlds biggest producer, just, yet expect other exporters to cut their production to keep US production profitable. Indeed the US want to have their cake and eat it, remember Trump trying to get the price down when gasoline went above $2.90 a gallon, that was less than a year ago on May 6th 2019. If the US oil industry doesn’t have a plan to cut production why should anyone else in Opec+ do so?
One idea might be to agree that the US would across the board cut production by, say, 20-25% which looks to me like it will probably happen any way. Taking the 2019 year end number of 12.8m b/d I expect that to go down by 1m b/d this year and again next year taking the end 2021 number to 10.8m b/d which itself is a short 20% fall, it might be more. One could triumphantly make that pledge safe in the knowledge that it might happen anyway, if he were to lose the election it wouldn’t matter anyway…..
One other thing, think back to 2014-16 where companies made exactly the same capex cutbacks which took a trillion barrels off the market and this under-investment was lost permanently causing a shortage in world oil markets. Finally, the Chinese are buying in crude for their SPR as well as potentially the USA and keep an eye out for the rig count this afternoon.
Shell and BP both issued bonds yesterday and according to the bond guru, Marcus Ashworth of Bloomberg both went pretty well. Shell was most successful, issuing in Euros, BP issued in dollars and has under-performed Shell with their 5 year bond yielding 3%. Shell, where the 5 year euro was a 1.3%, still substantially higher than the negative yields it enjoyed in early March. No sign here that the international bond market is distancing itself from the oil majors.
Yesterday I managed to persuade George Lucas, MD of Angus Energy for a Zoom CEO interview with Core Finance. In a wide ranging interview on a company that I have been more positive on in recent months, we talked about his whole asset portfolio but to be fair I did concentrate on their Saltfleetby gas field in the East Midlands.
This smart acquisition of a superbly appointed field in almost production ready condition has given them a CPR of £130m of recoverable gas of which Angus gets half. This gives Angus, post costs and capex some £50m of revenue over the next ten years. The company has two planning applications to win and make a 600m pipeline to connect to the grid as well as to sign a takeoff agreement already close to agreement with a major. I’m pleasantly impressed by how well the Angus team is working despite difficult planning conditions and the share looks like it may have plenty of upside, well worth watching.
Hunting has announced, along with details of a virtual AGM, that it has withdrawn the final dividend previously announced of 6c per share, but unlike Wood Group who yesterday merely removed the divvi, Hunting replaced the 6c final with a second interim of 3c per share.