Trending: Even oil prices have a silver lining| MENAFN.COM

Saturday, 29 January 2022 06:30 GMT

Trending: Even oil prices have a silver lining


(MENAFN- ProactiveInvestors)Oil suffered disappointment at the failure of supply talks at the weekend in Doha Qatar but far from a bloodbath. Why There was also good news upon which to focus. A week ago oil prices  jumped as rumours swirled that a deal was close at hand between Russia and OPEC to cap output and stabilise prices. By the end of the week investors were growing anxious if that might offer a false dawn. With Iran choosing at the last minute not to send its oil minister to the Doha talks it at best scuppered the deal and at worst sobtaged it. Without Iran present no deal would have credence. Although as often in such talks it was another nation who would endure the criticism. Saudi Arabia insisted that any deal must include its regional rival Iran. But already late last week investors had grown so anxious some had gone short position on energy stocks knowing they could snap them up on any disappointment come Monday. The largest oil stocks like BP and Royal Dutch Shell certainly did see their share prices drop on Monday while some of the smaller players gained as investors mopped them up. In Europe Gulf Keystone Petroleum Limited (LON:GKP) rose 19% to 470p. The Kurdistan oil group rallied after heavy falls last week when it revealed it needed US$71mln to stop production falling at Shaikan field. Meanwhile UK-based oil & gas company Hurricane Energy PLC (LON:HUR) also advanced 225p to 1250p as it announced annual results. But smallcap US oil stocks also fared well. In the top 10 gainers on the S&P Smallcap 600 Helix Energy Solutions (NYSE:HLX) Contango Oil & Gas (NYSEMKT: MCF) and Pdc Energy (NASDAQ:PDCE) all featured. In the S&P Midcap 400 the top 10 gainers included Energen Corp (NYSE:EGN) and Dril-Quip (NYSE:DRQ). Looking at oil prices today with the West Texas Intermediate showing 1.5% down at $39.74 and with those prices unable to break convincingly above $40 in six months certainly things look as downbeat as ever. Certainly news that Kuwait significantly cut production due to an oil-worker strike might only help in the short-term. But there are also fundamental positives at play and that is why oil prices did not sell off more on Monday. That is not to say there will not be casualties among readers of this post. Oil analysts are convinced that the persistently low oil prices are forcing high cost oil producers out of business. Nimble smaller players are more adept at cutting back costs than their mid-cap cousins let alone the largest oil companies - whose only real defence mechanism is to boost forecourt prices the moment they feel optimism rather than cutting back costs. Oil prices have certainly increased from a nadir below $30 a barrel in January. But over the period since then major forecasting agencies such as the International Energy Agency and Energy Information Administration have grown more confident that there will be a significant rebalancing of the oil market later this year. While oil stocks are expected to grow by 1.5mln barrels a day in the first six months of 2016 the IEA now expects them to slow to 200000 b/d in the second half of the year because of the drop in high-cost production in places like the United States. Although the Doha failure suggests a rift within Saudi ranks on the way forward improving supply and demand fundamentals make a formal production freeze less important for oil prices than they would have been two months ago. It is not much to clutch onto but that is your silver lining.


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