The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.

Less Ads, More Data, More Tools Register for FREE

Pin to quick picksRDSA.L Share News (RDSA)

  • There is currently no data for RDSA

Watchlists are a member only feature

Login to your account

Alerts are a premium feature

Login to your account

RPT-GRAPHIC-A slippery trade: oil slump proves bears right

Mon, 26th Nov 2018 07:00

* World oil sector down 8.6 percent this year

* Crude slumped in October from peak of $85

* Investors remain cautious about volatile oil stocks

* Crude price volatility poses challenge to oil majors too

* GRAPHIC: Gap between stocks and crude closes https://tmsnrt.rs/2QxTH5T

By Helen Reid and Ron Bousso

LONDON, Nov 23 (Reuters) - The latest collapse in oil priceshas proved some investors right in their lack of confidence inenergy stocks this year.Crude prices surged to a four-year high early in 2018 astensions with Iran and OPEC supply cuts raised concerns thatglobal oil supply was dwindling.

But the narrative has flipped since October as worries overa global trade war and rising U.S. shale oil production mounted,driving oil to a one-year low on Friday. Brent crude is down to$60 a barrel from a peak of $85 in early October.

While oil majors have gone some way to cleaning up theirbalance sheets since the 2014 oil price collapse, their sharesare still sensitive to moves in the underlying commodity -higher crude spells stronger revenues.

When prices were climbing earlier this year, big banks wererecommending investors buy back into the sector. Many,especially in Europe, followed that advice.

But given the latest falls, some of those who sat on thesidelines believe their caution has been rewarded.

Kevin Gardiner, global investment strategist at Rothschild &Co Wealth Management, said he was happy not to have piled intothe bullish oil trade, having considered it earlier in the year.

"Just as the ink was drying on the bullish stories on theoil price, we turned around and a sector that was lookingintriguing is now looking much less so, at short notice," saidGardiner."You have to be really careful with commodities, because it'sa market timing story," he added.

Investing in European oil stocks at the start of this yearwould have been very lucrative - if you had had the foresight tosell at the October peak.

That would have delivered a solid 15 percent return, not tobe sniffed at in a building global bear market.

In Europe the energy sector is still thestrongest-performing this year, up 2.2 percent by Nov. 22 whenall other sectors apart from healthcare are in the red.

The main decision facing investors is whether they canstomach the volatility of the sector.

"The collapse in the last month has really scaredinstitutions," said Ashley Kelty, oil and gas analyst at CantorFitzgerald.

"Investors recognise that the stocks are still fundamentallyOK, but trying to ascertain a long-term value is very difficult,so a lot of people are going to be sitting on their hands untilthe oil price stabilises."

Bank of America Merrill Lynch's November fund manager surveyshowed investors slashed allocations to energy stocks by sevenpercentage points from the previous month, while European fundmanagers also cut their positions.

ETFs tracking energy indices have seen big outflows, takingtheir assets under management back to April levels.

Energy stocks had already significantly lagged gains in oillast year, as investors remained cautious about runaway crudeprices which they judged could easily come crashing back down.

"When the oil price did come back most long-terminstitutions recognised that they were very underweight in oil,but were quite happy to give up the first 20 to 25 percent ofthe rise before they came back in, mainly because they were verywary that oil could rebound downwards very quickly," Kelty said.

While many at the start of this year predicted the gap wouldclose from the bottom as oil stocks caught up with gains in thecrude price, the latest data shows that gap is closing from thetop, with crude crumbling, proving bears right.

Energy stocks are better positioned to withstand lower oilprices than they have been in the past.

The world's top oil companies, including Exxon Mobil, Royal Dutch Shell and BP, are todayable to generate profit at oil prices of around $50 a barrel,and have vowed to remain disciplined in spending even as theoutlook for oil prices looked stronger.

"The cashflow improvements coming from the energy sectorgenerally are still quite good," said Caroline Simmons, thedeputy head of UBS Wealth Management's UK investment office.

But oil price volatility poses a problem not just forinvestors but also for the companies themselves, she added.

"What they want is stability in the oil price to be able tomake decisions about future investment. It doesn't even matterabout the level, they just need stability," she said.

BP is planning its long-term investments based on an averageoil price of $50 to $65 a barrel, its Chief Executive Bob Dudleysaid in October.

Alastair Bishop, director and portfolio manager inBlackRock's natural resources team, which has major holdings inthe world's five largest oil and gas companies, said he did notexpect capital expenditure to rise in the near term.

(Reporting by Helen Reid and Ron Bousso; Editing by Jan Harvey)

More News
30 Dec 2021 09:28

UPDATE 2-FTSE 100 edges down as COVID fears dull festive cheer

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)* Industrial stocks eye best performance in 23 years* Travel and leisure hit by Omicron fears* Ashtead the top YTD performer on FTSE 100* UK ...

Read more
30 Dec 2021 05:33

UPDATE 5-Oil prices rise slightly ahead of OPEC+ meeting next week

* U.S. crude, fuel stocks fell last week; output rises -EIA* Saudi king says OPEC+ pact 'essential' for oil market stability (New throughout, updates prices, market activity and comments to settlement, adds OPEC+ meeting details and PSM details)By...

Read more
28 Dec 2021 09:41

S.African court halts Shell's offshore seismic survey

CAPE TOWN, Dec 28 (Reuters) - A South African high court on Tuesday blocked Shell from conducting seismic testing offshore from South Africa's pristine Wild Coast, in the latest ruling in a case seeking to prevent the oil major from exploring for...

Read more
27 Dec 2021 14:01

Mexican president says Pemex to close Deer Park deal in January

MEXICO CITY, Dec 27 (Reuters) - Mexican state oil company Petroleos Mexicanos (Pemex) will complete its purchase of a controlling interest in a Texas oil refinery in January, Mexican President Andres Manuel Lopez Obrador said on Monday.Mexico's go...

Read more
24 Dec 2021 10:03

UPDATE 1-Russia says Europe missing out on gas with Nord Stream 2 delay

(Recasts, adds quote, background)MOSCOW, Dec 24 (Reuters) - Europe, struggling with soaring gas prices, is missing out on additional Russian supplies amid delays to the Nord Stream 2 pipeline, a top Russian official signalled on Friday.Deputy Prim...

Read more
24 Dec 2021 08:26

Russia's Novak: Nord Stream 2 hindered by politics

MOSCOW, Dec 24 (Reuters) - The launch of the Nord Stream 2 natural gas pipeline is being hindered by politics, but Russia still hopes its certification will be completed by mid-2022, Russian Deputy Prime Minister Alexander Novak said on Friday.The...

Read more
24 Dec 2021 08:19

Russia says Nord Stream 2 a bargaining chip for U.S., EU, Interfax reports

MOSCOW, Dec 24 (Reuters) - The Nord Stream 2 gas pipeline project linking Russia with Europe has become a bargaining chip in a game played by the United States and the European Union, Russian Deputy Foreign Minister Sergei Ryabkov said on Friday, ...

Read more
23 Dec 2021 14:14

Third Point's Loeb slams activists after UK fund chairman quits

LONDON, Dec 23 (Reuters) - Hedge fund Third Point's boss Dan Loeb on Thursday blamed the departure of the chairman of the firm's London-listed fund on "inexperienced" and "juvenile antics" of activist investors.Third Point Investors Limited (TPIL)...

Read more
22 Dec 2021 20:56

Shell declares force majeure on Nigerian Forcados crude

LAGOS, Dec 22 (Reuters) - Royal Dutch Shell's Nigerian subsidiary SPDC has declared force majeure on exports of Nigerian Forcados crude oil after the obstruction of a tanker path by a malfunctioning barge, the company said in a statement.The actio...

Read more
22 Dec 2021 13:49

UPDATE 3-Mexico says U.S. approves Deer Park refinery deal, sees completion early 2022

(Adds details)MEXICO CITY, Dec 22 (Reuters) - The U.S. government has authorized the purchase by Petroleos Mexicanos (Pemex) of Royal Dutch Shell's controlling interest in a Texas oil refinery in a transaction that should conclude early next year,...

Read more
22 Dec 2021 13:49

UPDATE 2-Mexico says U.S. government approves Deer Park refinery deal

(Adds context, comment from Pemex CEO)MEXICO CITY, Dec 22 (Reuters) - The U.S. government has authorized the purchase by Petroleos Mexicanos (Pemex) of Royal Dutch Shell's controlling interest in a Texas oil refinery, Mexican President Andres Manu...

Read more
22 Dec 2021 13:49

UPDATE 1-Mexico says U.S. government approves Deer Park refinery deal

(Adds details)MEXICO CITY, Dec 22 (Reuters) - The U.S. government has authorized the purchase by Petroleos Mexicanos (Pemex) of Royal Dutch Shell's controlling interest in a Texas oil refinery, Mexican President Andres Manuel Lopez Obrador said on...

Read more
22 Dec 2021 13:15

Mexico says U.S. government approves Deer Park refinery deal

MEXICO CITY, Dec 22 (Reuters) - The U.S. government has authorized the purchase by Petroleos Mexicanos (Pemex) of Royal Dutch Shell's controlling interest in a Texas oil refinery, Mexican President Andres Manuel Lopez Obrador said on Wednesday.Lo...

Read more
21 Dec 2021 19:06

UPDATE 1-Texas lawsuit by laundromat owners seeks to block Shell refinery sale to Pemex

(Adds U.S. Treasury, CFIUS decline to comment)By Stefanie Eschenbacher and Gary McWilliamsMEXICO CITY/HOUSTON, Dec 21 (Reuters) - A pair of New York businessmen filed a lawsuit in a U.S. court seeking to block Mexico's state oil company Petroleos M...

Read more
21 Dec 2021 18:32

Texas lawsuit by laundromat owners seeks to block Shell refinery sale to Pemex

By Stefanie EschenbacherMEXICO CITY/HOUSTON, Dec 21 (Reuters) - A pair of New York businessmen filed a lawsuit in a U.S. court seeking to block Mexico's state oil company Petroleos Mexicanos (Pemex) from taking control of a Texas refinery, claimin...

Read more

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.