OPEC’s ‘CATCH 22’: HOW TO UNWIND ITS DEAL TO CUT PRODUCTION
Major oil producers are pondering how to exit an agreement to cut global output, without causing oil markets to fall when the deal bandage comes off.
“Saudi Arabian Energy Minister Khalid al-Falih said last week the Organization of the Petroleum Exporting Countries doesn’t want to ‘shock the markets’ when it unwinds a November agreement to withhold almost 2% of global oil supply. The deal is set to expire in March 2018,” write Georgi Kantchev, Benoit Faucon and Summer Said.
Investors are concerned that OPEC and other big producers like Russia could simply return to pumping full tilt when the deal expires, potentially sinking prices.
OIL PRICES FLASH A BUY SIGNAL
Patient oil bulls are winning as near-term crude prices are close to surpassing the value of longer term oil contracts, writes Alison Sider.
“For most of 2017, the price of oil delivered in the future has been higher than the spot price. That is a sign that there is more than enough oil sloshing around the market to meet current demand,” the Journal reports.
But now the tide is turning and investors that bet on rising spot prices stand to gain.
U.S. oil prices rose 9% to $50.17 a barrel in July in response to positive U.S. stockpile data.
“Now, the difference between current and longer-term futures prices has shrunk. The gap between prices of the two nearest monthly contracts is nearly the narrowest since December 2014,” the Journal reports.
BIG OIL BITES THE LOW PRICE BULLET
Major oil companies seem to have made peace with the prospect of oil prices remaining low for the foreseeable future but investors should worry about whether firms can afford to continue paying out generous dividends, writes Nathaniel Taplin.
A chorus of big oil executives has changed their tune on oil prices. Royal Dutch Shell ’s boss Ben van Beurden recently said oil could be “lower forever”, while BP said Tuesday it is targeting a future break-even oil price of $35 to $40 a barrel.
The danger is that the new low environment can put a crimp on the cash that is available to pay investors their dividends, reports Mr. Taplin.
Meanwhile, medium-sized oil exploration firms such as Kosmos Energy Ltd have long ago adjusted to oil’s more humble circumstances and are looking for new ways to fund their operations.
Kosmos’ claim to fame is the 2007 discovery of the Jubilee field offshore Ghana, one of the largest oil discoveries in the West African region.
The firm listed on the New York Stock Exchange in 2011 and now it is set to do a secondary listing on the London Stock Exchange in the third quarter of 2017.
“This secondary listing is the next step in the company’s evolution. Our NYSE listing has enabled Kosmos to attract blue chip investors and given us access to significant opportunities,” said Chief Executive Andrew G. Inglis.
Oil prices edged up on Wednesday, ahead of the release of U.S. inventory data and amid concerns about major oil producers’ wavering commitment to output caps.
Brent crude, the global oil benchmark, rose 0.44% to $52.01 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.18% at $49.26 a barrel.