Energy stocks seen hurt by oil price drop

The shares of listed Nigerian Oil & Gas companies have since taken a beaten as oil price drop weighed investors’ appetite to raise bets on them.

The price of oil has halved over the last 12 months, mainly as a result of unprecedented levels of production from some major exporting countries, but also as demand from China and other commodity consumers, such as Brazil and Russia, declined.

BusinessDay checks on the performance of stocks listed on the Oil & Gas sector (petroleum products distribution companies and their exploration/production counterparts) at the Nigerian Stock Exchange (NSE) shows a big drag of minus 7.14 percent in returns this year.

The share price of an exploration and production group, Seplat Petroleum Development Company plc has dipped remarkably from July 1, 2015 highs of N340.6kobo to N235kobo as at October 19, 2015.

In the same period, Seplat’s counterpart, Total Nigeria plc share price dropped from N165 to N150.01. Also, the share price of MRS Oil Nigeria plc which was N50.54kobo as at July 1, declined to N49.66 as at October 9.

The world’s largest oil trader, Vitol has indicated that crude price will struggle to trade above $60 a barrel next year, as the effects of slowing global demand growth could be compounded by a return of Iranian and maybe even Libyan barrels.

Also, in Nigeria, shares of most listed petroleum products distribution companies seem to have outperformed, but others witnessed major pullback.

“Earnings have been important in the sense of providing visibility and stopping the bleeding” said Brett Mock, managing director at brokerage JonesTrading Institutional Services LLC, an institutional equity broker-dealer focused on executing large orders (block trades) from institutional clients.

Oando plc share price declined from N15.60 as at July 1, 2015 to N9.28 as at October 19. In the same period, Conoil plc recorded a major dip in its share value from a high of N40.85 to N27.41; and Eterna Oil plc declined from N2.45 to N1.80.

Except for Mobil Oil Nigeria plc which rose from N150 to N154; and Forte Oil plc which recorded growth in its share price from N188 to N280.   

OPEC monthly oil market report shows Reference Basket averaged $44.83per barrel in September, representing a decline from the previous month of 63cents.

“Overall, investors are getting used to the idea that we are in a sub minus 7 percent growth environment in China. Energy is a different story. It is getting pulled down by the number, but if this number had come out a year ago, there would be a lot more angst and anxiety,” said Joseph Quinlan, chief market strategist at U.S Trust, a private bank serving the needs of high networth and ultra high networth individuals and families.

Fundamental factors that have weighed on the market for more than a year have persisted but are starting to show signs of alleviating, said the oil cartel which organises oil producers while agreeing to fix selling prices, purchase prices, or reduce production, using a variety of tactics.

“OECD commercial oil stocks rose further in August to stand at 2,933 million barrels (mb). At this level, inventories were around 194 mb higher than the five-year average. Crude and products showed a surplus of around 167 mb and 27 mb, respectively. In terms of days of forward cover, OECD commercial stocks stood at 63.3 days in August, some 4.5 days higher than the five-year average”, OPEC stated.

World oil demand growth in 2015 is foreseen to rise by 1.50 million barrels per day, following an upward revision of around 40,000barrels per day, mostly due to better-than-expected data in Q3’15.

Total oil demand is now forecast at 92.86million barrels per day (mb/d). OPEC oil supply growth in 2015 now stands at 0.72mb/d, following a downward revision of 0.16 mb/d from the September report, attributed mainly to a downward adjustment in the US.

In 2016, world oil demand is anticipated to rise by 1.25 million barrels per day, following a downward revision of 40,000barrels per day, mainly to reflect the high base-line effect. As a result, world oil demand is forecast to reach 94.11million barrels per day.

Iheanyi Nwachukwu in Atlanta, Georgia, USA