Oil Investors Have $490 Billion Riding on Big OPEC Decision

EghtesadOnline: After two tough years of falling oil prices and company valuations, investors in the world’s biggest energy producers have some cause for hope as crude prices continue their recovery from a 12-year low. They will be looking to OPEC not to dash it.

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28 November 2016

Oil companies around the world have together added $490 billion to their market value this year, the biggest gain in six years following a 25 percent rise in benchmark Brent crude, according to data compiled by Bloomberg. This follows a $850 billion loss in value last year and $720 billion in 2014 as crude prices plunged, Bloomberg reported.

The oil slump has hammered producers around the world, from giants like Royal Dutch Shell Plc to exploration minnows. They have piled on debt, canceled billions of dollars of projects and slashed jobs to ride out the downturn. In September, the Organization of Petroleum Exporting Countries gave these companies hope by reversing a two-year policy of pumping at full throttle and agreeing instead to cut production. Yet, the group is struggling to overcome obstacles to implementing the deal.

“We all know what the oil companies are hoping for -- a cut,” said Brendan Warn, a managing director at BMO Capital Markets in London. “The companies have become leaner and meaner than they have ever been, but they would still be looking at OPEC closely. It’s one of the most important OPEC meetings.”

The Bloomberg World Oil & Gas Index of 58 companies is up 12 percent this year, the largest gain since 2009 following two years of declines. Exxon Mobil Corp., Chevron Corp., Shell, Total SA and BP Plc have all increased this year. Energy companies are the second-best performers in the MSCI World Index after languishing at the bottom in 2015.

The year didn’t start so well. Brent crude fell as low as $27.10 a barrel in January, the lowest since November 2003, as OPEC kept its taps open and production from Russia and the U.S. was increasing. Saudi Arabia, which had led OPEC’s free-flowing oil policy, changed course in September amid increasing domestic financial pressure and the group decided to cut production for the first time in eight years.

Oil bosses could be forgiven for hoping OPEC members resolve their differences, since every dollar increase in crude raises BP’s annual adjusted profit by about $300 million, according to the company’s website.

CEOs from BP’s Bob Dudley to Shell’s Ben Van Beurden have reduced their operating costs by renegotiating contracts, making projects smaller and cutting workers. Next year, they’ll be able to balance their cash sources and spending at about $50 to $55 a barrel. Brent traded at about $47 on Monday.

“It’s one thing to hope and another to plan your business for the future,” Warn said. Regardless of the outcome of the OPEC talks “the companies will be focusing on the things they can control, like efficiency and costs.”