Oil price drops despite OPEC cuts & Iran sanctions

Oil Stock Markets

Oil prices fell on Wednesday, weighed down by ample supplies despite ongoing output cuts by producer cartel OPEC and looming U.S. sanctions against major crude exporter Iran. 

Brent crude futures LCOc1 were at $78.23 per barrel at 0445 GMT, down 20 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $71.08 a barrel, down 23 cents, or 0.3 percent, from their last settlement.

Despite the dips, both financial oil benchmarks remained close to their November 2014 highs of $79.47 and $71.92 a barrel respectively, reached the previous day.

But there are signs in physical crude markets that may give pause to financial investors.

There are also signs that oil production will rise, especially at majors like ExxonMobil (XOM), Royal Dutch Shell (RDSa.L), Chevron (CVX.N), BP (BP.L) and Total (TOTF.PA).


Spot crude oil cargo prices are at their steepest discounts to futures prices in years as sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in U.S. crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday.

Official U.S. government fuel storage data is due for release by the Energy Information Administration (EIA) later on Wednesday.

Despite Wednesday’s dips and some indicators implying the financial oil has overshot physical oil, overall crude market conditions have tightened since 2017 when the Organization of the Petroleum Exporting Countries (OPEC) started to withhold supplies to push up oil prices.

With renewed U.S. sanctions looming against OPEC-member Iran and oil demand strong, analysts said crude markets will likely remain tight for much of the year.

Stronger oil prices are also spilling into other markets.

Royal Dutch Shell profits soar on stronger oil prices

Oil Stock Markets

Royal Dutch Shell on Thursday reported a 42 percent rise in first-quarter profit, its highest in over three years, boosted by higher oil prices and production.

Expectations are high for Shell to continue to generate strong profits and cash flow after the Anglo-Dutch company beat larger rival Exxon Mobil <XOM.N> on both fronts in 2017 thanks to cost cuts and higher efficiencies.

The world's top oil companies are expected to generate more cash in 2018 than at any other time this decade after three years of cuts, but boards remain cautious amid uncertainty over near- and long-term prices.

Shell in the fourth quarter scrapped its scrip dividend in a sign that it is confident of being able to maintain around $15 billion in annual dividend payments without resorting to borrowing after a three-year oil price downturn.

It plans to buy back $25 billion (17.94 billion pounds) of shares by 2020 in order to offset the dilutive effect of the scrip and its $54 billion acquisition of BG Group.

It did not specify a time to start the program on Thursday.

After falling short of expectations in the previous quarter, Shell's cash flow from operations in the first three months of 2018 recovered to $9.43 billion, which was still slightly weaker from $9.5 billion a year earlier.

Free cash flow was little changed from a year earlier at $5.178 billion.

Net income attributable to shareholders, based on a current cost of supplies (CCS) and excluding identified items, rose to $5.322 billion, topping a company-provided analysts' consensus of $5.277 billion.

A year ago, net income was $3.754 billion.

Production grew by 2 percent to 3.839 million barrels of oil equivalent per day. Earnings for the segment almost tripled from a year earlier.

Income from the refining and marketing segment, known as downstream, weakened due to lower refining margins and plant availability.

Gearing, the ratio between debt and Shell's market capitalisation was slightly lower from the end of 2018 at 24.7 percent by the end of March.

Brent crude oil prices in recent months have risen to $75 per barrel, their highest since late 2014.

Prices averaged around $67 a barrel in the first quarter, up nearly 25 percent from a year earlier.

Shell focussed on increasing U.S. shale oil production

Oil Stock Markets

Royal Dutch Shell Plc is focussed on increasing its U.S. shale operation’s oil production while slowing investment in lower-margin natural gas.

 

The Anglo-Dutch company aims to boost its overall shale production by 200,000 barrels of oil equivalent per day (boe/d) to 500,000 boe/d between 2017 and 2020, mostly in the United States with some production in Argentina. 

Although the shale business has yet to generate a profit, it is expected to do so next year, Greg Guidry, who heads Shell’s shale operations, told Reuters on the sidelines of the CERAWeek energy conference in Houston. 

Shell, like Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N), aims to make shale production a driver of growth in the next decade. But today most of its output is natural gas, where profit margins are lower. 

As a result, around 85 percent of Shell’s shale budget for at least the next two years will go towards new oil resources, particularly in the Permian oilfield of West Texas and Canada’s Duvernay Basin.

After years of faltering performance and increased spending in shale, Shell has in recent years transformed the business to adapt to the sharp drop in oil prices since 2014. 

Shale oil wells today can be profitable with oil prices above $40 a barrel and gas above $2 per million British thermal units.

Shell has earmarked between $2 billion and $3 billion per year, roughly 10 percent of its capital expenditure, for shale until 2020. 

Gas production will remain largely flat in the coming years and would be boosted in Canada’s Montney basin once Shell decides to go ahead with a major natural gas liquefaction plant in British Columbia known as LNG Canad.

In its eastern U.S. Appalachia gas fields, an increase in output would require construction of pipelines to deliver fuel to demand hubs.

Shell also is advancing shale production in Argentina’s Vaca Muerta basin and will make a decision on developing a production well later this year.

Shell’s 2016 acquisition of BG Group in 2016 boosted the share of natural gas to 50 percent of its global fossil fuels output and made it the world’s largest natural gas trader.

FTSE runs out of steam; global investors fret over resignation of Gary Cohn

European Stock Markets

A two-day rally of British stocks ran out of steam on Wednesday after the resignation of U.S. economic advisor Gary Cohn caused global investors to fret over the U.S. administration’s shift towards protectionism, stoking fears of a trade war. 
 

The FTSE 100 was flat by 0926 GMT, outperforming European peers thanks to strong gains in engine maker Rolls Royce after results. The blue-chip index still languished near 14-month lows hit last week.

Trade fears caused metals prices to slip, driving miners Glencore, Anglo American, BHP Billiton and Rio Tinto down 1.9 to 2.4 percent.

Oil prices also tumbled, sending oil majors BP and Royal Dutch Shell down 0.7 percent.

Rolls Royce shares charged ahead, up 14.1 percent after its turnaround plan boosted profit ahead of expectations.

The sharp rise in share price could be down to investors unwinding short positions in the stock, traders said.

Astec Analytics data showed the cost to borrow Rolls Royce shares has risen over the past month, indicating increased interest in shorting the stock leading up to these results.

Just Eat shares recovered slightly from the previous day’s results-driven losses, up 2.8 percent.

Paddy Power Betfair shares however fell 5 percent, the worst-performing on the FTSE after the betting company reported full-year results in which analysts said lower guidance disappointed investors.

WPP was also a notable faller, down 1.8 percent after the latest blow to the advertising agency model which has come under increased pressure.

U.S. consumer goods giant Procter & Gamble was reported to be cutting ad agency spending by $1.25 billion over the next three years to focus on internal analytics instead.

French advertising peer Publicis fell 2 percent to the bottom of the CAC 40.

Hill & Smith shares jumped 10 percent, set for their best day in nearly two years, after the infrastructure products maker reported record revenue and profits in its full-year results.

Overall analysts have been revising earnings lower for the FTSE 100 in the past weeks as the index struggles at 14-month lows.