Oil stocks look tasty, but expect this virus to have a long tail

It looks like energy names are up on Wednesday, well outpacing a local market weighed down by weak US leads and possibly boredom.

But don’t thank our collective refusal to acknowledge a warming planet. In this case, oil prices rise in the face of – and because of – everyone’s favorite cartel of the world’s major oil producers.

Yes, OPEC+ – that highly combustible and desperately suspicious coalition of the Organization of the Petroleum Exporting Countries and a cohort of Russian-led oil producers – agreed to stay the course on their collective 400,000 increase. barrels per day of monthly production for February .

The largely predictable bet made early this morning in Sydney, time to keep pumping more crude, rests on the likelihood that Omicron will not scuttle demand in the same way that previous waves of Covid have dented oil prices.

The group agreed last year to increase production in increments every month until production reaches pre-pandemic levels, but reviews the policy every month in case more money can be made. with an adjustment here or there.

After pausing to digest the thought, Brent crude jumped 2% while US crude closed near a six-week high.

But why do prices rise with increased production?

Well, last year crude posted its biggest annual gain in value since the release of Lady Gaga’s unexpected horror-pop mashup Poker Face (look at it) – and with lockdown fatigue at its highest level right now, the wise cartel knows when more is less and more is more. In this case, the latter.

Ahead of the morning meeting, OPEC’s technical committee cut what it estimates to be the global crude surplus for the first three months of the year by around 25%, calling the impact of the omicron of “light” and “short term”.

Meanwhile, in the United States, there is already a group of producers struggling to meet their quotas, a deviation that OPEC+ is more than willing to attempt.

fear and panic

“In fact, the fear and panic of a month ago over the widespread disruptions and the hit to demand recovery have now subsided, giving OPEC+ greater confidence to continue to increase oil. offer,” said Singapore-based Vandana Hari, founder of energy analysts Vanda Insights.

Here is his short-term view on oil prices:

  • After surging in reaction to OPEC+ confidence in rebounding demand, crude will remain in recalibration mode
  • Growing hopes that the Omicron will be far less destructive than initially feared must be balanced against governments maintaining a cautious stance and not yet showing signs of easing new restrictions introduced more ago. one month
  • The positive narrative about Omicron’s low virulence will struggle to be in the spotlight, especially in the West, as policymakers and health experts are eager to push their vaccination and booster campaigns.

And in the medium term:

  • We see a long line of Covid
  • So even now, it looks like the pandemic will remain a primary influence on the oil market in 2022.
  • The momentum of the global economic recovery is expected to slow
  • The pent-up demand that fueled consumer spending in the second half of 2020 and into 2021 is expected to wane
  • This will be facilitated by persistent inflationary pressures, weakening a key pillar of growth

Here are the local small caps rising to the occasion:

Topping our unreported charts, Bass Oil may well have benefited from existing oil production from its operations in Indonesia.

The company recently recorded production of 5,722 barrels of oil in November and reported that it is close to completing the acquisition of three undeveloped Cooper Basin assets, including a 30% interest in the field. producing oil tanker from Worrior and other acreage, with Cooper Energy.

Also aware of the news, Pancontinental holds acreage that is trending with two high-impact wells that Shell and Total are drilling separately in the Orange Basin, offshore Namibia.

The successful drilling of one or both wells will significantly increase the prospectivity of the Company’s Saturn oil play in PEL 87.

Adding to the list of tankers with no news, 88 Energy remains on track to launch its Merlin-2 appraisal well in February.

This follows Merlin-1, which demonstrated the presence of oil in several stacked sequences within the Brookian Nanushuk formation and targets 652 million barrels of oil.

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Felix J. Dixon