Oil price has increased by 56% in a year

Oil prices started the year on a high note, as Brent crude added 2.3% to $58.11 a barrel on Tuesday from $56.80 a barrel on the last trading day of last year.

Since January last year, oil has risen more than 56%. Its surge over the past month was prompted by agreements on production cuts by several major producers, though many analysts are sceptical about how effective they will be.

SA is a price taker on oil and gas since it has no domestic production. The nearest substantial oil and gas resources are in Mozambique and they are in the early stage of development.
But oil prices, together with rand-dollar exchange rates, affect share prices of SA’s only gas and liquid fuels company, Sasol, and to a lesser extent those of other African producers listed on the JSE: SacOil Holdings and Oando.

The rand price of oil also influences inflation. From Wednesday, motorists will pay between 48c and 50c a litre more for petrol, and 37c to 39c a litre more for diesel.
Higher oil prices will incentivise deepwater exploration for oil and gas. Several multinationals including Total, Exxon, Anadarko, Shell and Tower Resources, have acquired exploration concessions off the South African coast.
Although Sasol’s earnings are derived from synthetic fuel, natural gas and chemicals, short-term moves in its share price are influenced by oil prices. The shares have slipped 3% to $401.22 over the past year, as improved oil prices have been offset by a stronger rand-dollar exchange rate and the announcement that the cost of its chemicals project in Louisiana had risen to $11bn from $8.9bn initially.
Shares in Oando, an integrated energy group with its headquarters in Nigeria, are infrequently traded in Johannesburg. They are at 32c, from 44c a year ago. Shares in SacOil, which produces a small quantity of oil from a field in Egypt and recently issued a cautionary notice about the potential acquisition of a petroleum product wholesaler, have eased to 29c from 34c. The price has risen sharply from 19c since the cautionary was issued.

 

 

At the end of November, the Organisation of the Petroleum Exporting Countries (Opec) and some non-Opec members agreed to cut production by a combined 1.7-million barrels a day — about 2% of annual production — for the first six months of this year. The pact is renewable for another six months.
Edison Investment Research said if these promised cuts were made, global inventories would start to fall in the second quarter. It forecast oil prices of $51.70/barrel for the year, rising to $70/barrel in the long term.
"The exact timing and magnitude of production cuts, elasticity of US shale to higher prices and emerging market demand growth all remain key uncertainties," Edison analysts said.
Afriforesight said that the main driver of the oil price in the next few months would be production cuts, but gains would be limited by a resurgence in production, particularly from US shale drillers.

 

In the next two years it expected rising consumption, together with moderately rising production costs, would move prices to about $65 a barrel.
Wood Mackenzie’s senior vice-president of corporate analysis research, Tom Ellacott, said that if Opec cuts drove oil prices to more than $55 a barrel, oil and gas companies would be cash-positive for the first time in two years, since they had managed to cut costs in that period.
He said that this year most oil and gas companies would resume looking for opportunities to grow their portfolios, led by the US independent producers. These are defined as those that refine less than 75,000 barrels of crude per day or have less than $5m in oil and gas retail sales. They contribute the bulk of US oil and gas production.
Ellacott said if oil prices averaged more than $50 a barrel, US independents could boost their capital expenditure by more than a quarter, although he expected the leading producers would cut spending about 8% as recent capital-intensive projects were completed.

 

by Charlotte Mathews/BDlive