Carsten Menke (Julius Baer) | While the extension of oil production cuts was confirmed at the last OPEC meeting, discord emerged between Saudi Arabia and Russia about whether even deeper production cuts would be needed. Oil prices came under pressure, reflecting renewed concerns about global growth. We see prices trading slightly below fundamentally justified levels.
Renta 4 | Repsol Downstream investors’ day showed not only the firm’s resilience but also its capacity for future growth. We recall that within its growth target for operational cash flow from 4.6 Bn€ in 2017 to 6.5 Bn€ in 2020 at 50%/b, Downstream cash flow would grow 800 M€: 300 M€ from international margins, 200 M€ from improvements in profitability from greater efficiency and 300 M€ from expansion and new low carbon business preparing for the energy transition.
One of the more interesting stories that seems to have flown beneath the radar of the foreign exchange market this week was that the US government has quietly asked Saudi Arabia and some other OPEC producers to increase oil production by around 1 mn barrels per day, according to Simon Derrick Chief currency strategist of BNY Mellon.
The new oil futures contract should therefore be seen “as a puzzle piece within the targeted internationalisation of the yuan”, comment from Julius Baer. The Chinese government is still a long way from the big goal of establishing the yuan as a leading reserve currency.
Two observations in oil market deserve closer attention these days, says analyst Norbert Rücker, Head Commodity Research at Julius Baer: the US official weekly petroleum market report, and the increased geopolitical uncertainties coming from Kurdistan’s independence vote and the US pressure on the Iran nuclear deal.
The Greek government has given authorisation to local firm Energean Oil and Gas and Spain’s Repsol to explore and operate hydrocarbon deposits in the region of Aitoloacarnania, in western Greece.
María Fernanda Tapia Cortés | Mexico starts 2017 with two trending topics: the announcement of new gasoline prices and protests inspired by the adjustment period in the form of a 20% price hike. While Mexicans are filled with outrage, moguls anticipate the potential earnings that this represents. The question is: Who will the energy reform benefit?
Julius Baer Research | Non-OPEC producers under the lead of Russia will join OPEC’s supply cuts, which was necessary for the deal to become effective. With the paperwork done, oil producers must now walk the talk. There are many buts and ifs and we remain sceptical if compliance with the quotas is sufficient to materially shift the oil market’s balance
OPEC’s first cut in production in eight years is not good news for the Spanish economy. Spain imports almost all the oil it consumes and has benefited enormously from the slump in the price of a barrel of this “black gold”. It’s estimated that every 10% drop in the price of oil allows for one-tenth of a percentage point improvement in Spanish GDP (1 billion euros). And the reverse is true when the price increases.
OPEC has finally agreed to cut production by nearly 1.2 million bpd from January and for 6 months, representing about 4.5% of global output. Now we need to ask two questions: will the cartel countries respect the agreement? What will happen with the recent investment deficit in the sector? Will it still be profitable for the big producers to extract oil?