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BP, Chevron, ENI, Saturn Oil & Gas, Shell, Total - what investors need to know now

Mario Hose Mario Hose, news.financial
0 Comments| May 19, 2020

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About a month ago, market participants around the world learned that the end of a price slide does not have to end at zero on the expiry date of WTI contracts. Anyone who thought that a barrel of American WTI at USD 0.01, which is 159 litres of crude oil, would be a special bargain on the expiration date and took the chance was taught an expensive lesson. The expiration date of 20 April 2020 will go down in history with an initial negative settlement price of USD -37.63. The USA is known to be the land of opportunity and this seems to be another chapter.

WTI futures stabilize

This week the time has come again and the settlement of the June 2020 WTI futures will take place. It is uncertain whether it is worth looking at Cushing in the US state of Oklahoma to deduce a price formation trend based on stock levels, as even speculators with no actual intention of delivery are involved.

Due to the market distortions in the previous month, it can be assumed that numerous traders will avoid the oil price as speculation for the foreseeable future. It is possible that a decline in the speculative elements in the pricing of crude oil futures will be sufficient to achieve stability for the planning process.


Market mechanisms have a delayed effect

The price of the WTI grade of the July 2020 futures is currently quoted at about USD 32.00. The Corona Pandemic and the accompanying decline in crude oil consumption have burdened price formation in the previous months. In addition, the increase in Saudi Arabia's production volume has added to the uncertainty. The low price of oil has caused companies and governments to suffer heavy revenue losses.

Due to the drastic developments in connection with the spread of Covid-19, the natural market mechanisms have reacted with a delay. It is now expected that due to the global decline in supply, a return to price levels above USD 50.00 per barrel is more likely.


Good oil from Canada

In connection with the price decline, the Canadian oil producer Saturn Oil & Gas (TSXV: SOIL) was able to inform investors that as a precautionary measure, the company has hedged about half of its production volume before the distribution of Covid-19 at a price of over CAD 65.00 and is therefore less affected by market conditions. A clear competitive advantage, which is partly due to the lean structures of the young company.

Due to environmental protection requirements and the observance of human rights, Canada is considered to be one of the 'good' producing countries in the overall context. The management of Saturn Oil & Gas places particular emphasis on the observance of ESG targets. With a valuation of CAD 0.115, the company is valued at around CAD 27.00 million and has corresponding upside potential. In autumn 2018, the shares peaked at CAD 0.30.


Diversification is the order of the day

Among the heavyweights in the oil sector are BP (NYSE: BP) with a market value of EUR 71.4 billion and Chevron (NYSE: CVX)with EUR 155.1 billion. But also, ENI (NYSE: E) with around EUR 31.0 billion and Total (NYSE: TOT) with EUR 80.3 billion as well as Shell (NYSE: RDS.A) with a market capitalization of EUR 107.1 billion are among the global brands of oil supply that make a safe and modern life possible. Investors who want to position themselves in the oil industry should diversify into shares of oil producers and avoid trading in futures due to the events of the previous month.



CONFLICT OF INTEREST & RISK NOTE
We would like to point out that Apaton Finance GmbH, the owner of news.financial, as well as partners, authors or employees of Apaton Finance GmbH may hold shares in the aforementioned companies and that there may therefore be a conflict of interest. Further details can be found in our ´Conflict of Interest & Risk Disclosure´.


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