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Its not only the Coronavirus outbreak which has put the whole world’s economy on the tenterhooks, but there is tensions flaring up in the oil market as well. Russia and Saudi Arabia, two of the world's largest oil producers, have been at each other’s throat that they're in a stronger position than the other to bear the pressure of the oil price war they've begun over the last month or so that they can get what they want.
When Saudi Arabia and other major OPEC countries and Russia last met in Vienna at the beginning of March to talk about the reduction of oil output that could place a floor under falling prices, due to coronavirus outbreak, oil traded at price of over $50 a barrel. Therefore, the Russian Federation decided to go against the three-year old deal that was agreed upon, to regulate global oil markets, declining to go with the Saudi Arabia's proposed cuts, pushing down oil prices sharply. The Saudis did not respond with their own one-sided cuts, but in the opposite direction- they reduced oil selling prices and subsequently also announced plans to increase oil production significantly, further driving down oil prices that had already plummeted as a result of the epidemic and its global economic toll. Russia went with a plan that there was an option that it could afford to step away from its cordial relationship, not only with Saudi Arabia but with other OPEC countries as well, even if that meant a slump in oil prices. There are two primary reasons behind this, first, in the years after the last oil-price collapse, it has tucked away lots of money, giving it a major financial cushion. Second, Russia stated, the biggest losers in any oil price war, would be high-cost U.S. shale producers; pushing down the price will both impose economic damage on the U.S. and weaken its ability to use its favourite instrument of foreign coercion: sanctions.
Oil prices rise as Trump expects the conflict to end
On Thursday, 2nd April 2020, U.S. oil prices surged by over 35 per cent on getting a Tweet from Trump that he is hopeful that the two sparring nations, Russia and Saudi Arabia would cut production by 10 million to 15 million barrels a day. Crude closed with a rise of 25 per cent to a price of US $25.32 per barrel, which was above the previous single day record increase, set exactly two weeks ago. While Trump indicated that the major reduction would come from these two nations only, there are indications that OPEC, he oil cartel might be looking to include other nations, including the United States as well.
In terms of a reaction, the official Saudi Press Agency said in a tweet on the same day that the Saudis are seeking a meeting of the leaders of the OPEC+ alliance, which includes Russia, as well as several other gulf countries and other oil producing nations in an effort to find a reasonable solution to restore the oil markets desired balance, though what would be part of that additional group of countries is not clear. The tweet said the invitation is part of the efforts of Saudi Arabia to boost the global economy and in recognition of the request of the US President and of the request of the US Oil community.
Another factor that is severely challenging the current oil trading environment is a massive fall in the demand of oil all across the world, due to the lockdowns being announced by several countries, driven by the Covid-19 pandemic. Industries are non-operational, and hence the demand for oil has gone down significantly and is expected to fall by approximately 17 million barrels per day in the future. If production is not slashed by the two oil giants, as well as other oil producing nations, the prices might fall significantly in the future, which is something that the oil producers and the industries might not want.
Businesses in the UK have been going through an extremely tough time, especially in the last 15 days, since the country has been on a complete lock down and no industrial activity has been in action. Oil and Gas companies have had to take an additional challenge, because of the plunging oil prices. The news that there might be a truce between Russia and the Saudi has led to a marginal recovery in oil prices, which is expected to give a boost to the Oil and Gas companies in the UK as well.
The following is the stock price performances of four of the biggest players within the industry, trading on the London Stock Exchange, which are expected to welcome this positive change.
BP Plc
BP Plc (LON: BP.) is a global energy giant, operating out of London, United Kingdom, that primarily engages in the upstream activities of oil and gas exploration and extraction in various areas.
Stock Price Performance
As on 3rd April 2020, at 08:00 A.M Greenwich Mean Time, at the time of writing this report, the BP Plc share was hovering at a price of GBX 347.75 on the London Stock Exchange market, a decline of approximately 1.58 per cent or GBX 5.60, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 353.35. As of the time of reporting, the market capitalisation of BP Plc has been reported to be at a value of GBP 71.621 billion, with respect to the current trading price of the company’s share.
The company’s stock had given a Year to date negative return of 25.07 per cent, as at the time of the close of market on 2nd April 2020.
The beta of the share of the company was reported to be at 1.20 when this report was being written. This points to the fact that the movement of the company’s share price is more volatile, in comparison with the movement in the price of the comparative benchmark index.
Energean Oil and Gas Plc
Energean Oil and Gas Plc (LON:ENOG) is a London, United Kingdom based company whose primary activity includes the exploration and production of oil and gas in Israel, Greece and Egypt.
ENOG Stock Price Performance
As on 3rd April 2020, at 08:05 A.M Greenwich Mean Time, at the time of writing this report, the Energean Oil and Gas Plc share was hovering at a price of GBX 646.00 on the London Stock Exchange market, an increase of approximately 2.21 per cent or GBX 14.00, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 632.00. As of the time of reporting, the market capitalisation of Energean Oil and Gas Plc has been reported to be at a value of GBP 1.119 billion, with respect to the current trading price of the company’s share.
The company’s stock had given a Year to date negative return of 32.04 per cent, as at the time of the close of market on 2nd April 2020.
Diversified Oil and Gas Plc
Diversified Oil and Gas Plc (LON:DGOC) is a Birmingham based oil and gas company that engages in the development of natural gas and crude oil assets as well as the production of the two, in United States of America.
DGOC Stock Price Performance
As on 3rd April 2020, at 08:10 A.M Greenwich Mean Time, at the time of writing this report, the Diversified Oil and Gas Plc share was hovering at a price of GBX 85.50 on the London Stock Exchange market, a decline of approximately 0.47 per cent or GBX 0.40, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 85.90. As of the time of reporting, the market capitalisation of Diversified Oil and Gas Plc has been reported to be at a value of GBP 552.17 million, with respect to the current trading price of the company’s share.
The company’s stock had given a Year to date negative return of 19.34 per cent, as at the time of the close of market on 2nd April 2020.
Cairn Energy Plc
Cairn Energy Plc (LON:CNE) is a company based out of Edinburgh, United Kingdom, engaged in the exploration and development of Oil and Gas, in multiple geographical regions in Europe.
CNE Stock Price Performance
As on 3rd April 2020, at 08:15 A.M Greenwich Mean Time, at the time of writing this report, the Cairn Energy Plc share was hovering at a price of GBX 93.70 on the London Stock Exchange market, an increase of approximately 6.48 per cent or GBX 5.700, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 88.00. As of the time of reporting, the market capitalisation of Cairn Energy Plc has been reported to be at a value of GBP 518.81 million, with respect to the current trading price of the company’s share.
The company’s stock had given a Year to date negative return of 57.07 per cent, as at the time of the close of market on 2nd April 2020.
The beta of the share of the company was reported to be at 1.89 when this report was being written. This points to the fact that the movement of the company’s share price is more volatile, in comparison with the movement in the price of the comparative benchmark index.
Comparative Share price chart of BP., ENOG, DGOC and CNE
Source: Thomson Reuters, on 03-04-2020, before the closing of the London Stock Exchange Market
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