Tullow Oil further decline?29 Dec 2018 14:19
With the Tullow Oil plc share price having fallen by 56% since early October, its prospects may appear to be relatively downbeat. The company’s falling market value has coincided with an oil price that has moved 40% lower over the same time period, with uncertainty regarding the world economy’s outlook weighing on investors’ minds.
As well as this, the oil and gas industry may be impacted by the decision by the US to waive sanctions on Iran for eight countries. This means that exports from Iran are allowed for countries such as China, South Korea and Japan for a period of six months. Investors had anticipated that the supply of oil from Iran would fall to zero in the latter part of 2018, but this has not proven to be the case.
If the waivers are extended, it could mean that the oil price faces a challenging future in my view. And even if they are not, the prospect of lower-than-expected demand due to fears surrounding the global economy could keep prices pegged back in the meantime.
With Tullow Oil’s financial performance being closely tied to the oil price, its shares may follow the price of black gold in the near term. The stock has a sound strategy in my opinion which is focused on increasing production and reducing debt levels. But if the price of oil sinks, the company’s profitability could do likewise.
With a P/E ratio of 8.6, I think that the Tullow Oil share price could offer a margin of safety. It may become cheaper in the near term, but in the long run I believe that it has recovery potential.
Clearly, this is a volatile and uncertain period for the oil and gas sector, and I view the company as being high risk. At the same time, though, it could offer recovery appeal in my opinion in future years.
https://investomania.co.uk/2018/12/does-tullow-oil-plc-face-a-further-decline-as-the-oil-price-keeps-falling/
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