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by Klaus Schachinger, Euro on Sunday
Even the old manipulators have not seen this in the oil business: after the low prices in the previous weeks, the price fell to the lowest level since 2002 at the beginning of the week. A barrel l (159 liters) of the Brent variety was temporarily traded for less than $ 20. Then a tweet from the President of the United States Donald trump Production cuts from Saudi Arabia and Russia are possible at the end of the week for a one-day price jump of 40 percent. However, it remains to be seen whether there will be funding restrictions.
However, it is clear that the world is currently floating on it; storage capacity is shrinking worldwide. Obviously, regardless of the impact, rival countries in Saudi Arabia and Russia are increasing production of their pumps, while the world economy is slipping into a recession with far less oil and fuel consumption due to the crown pandemic. In the first three months of the year, I fell by more than 50 percent.
According to US bank Goldman Sachs, this is the sharpest drop in prices in a quarter since development occurred. Due to restrictions on public life in many countries and the looming recession, IHS Markit market researchers expect a reduction in global daily crude oil consumption of up to 14 million barrels in the second quarter. According to experts, this is more than China’s daily oil consumption in the past year.
Therefore, traders buy oil and gas capacities to store them on land and on ships at sea and then sell them at higher prices. During the week, November oil deliveries were up to $ 13 more per barrel compared to May contracts.
The fall in prices is a mixture due to weak demand, large volumes and low storage capacities. It is particularly hit by companies that produce oil and gas from slate in a complex and expensive way. Additionally, many of these companies are heavily indebted to risky high-yield bonds, known as junk bonds. Therefore, heavyweights in this business, such as Occidental Petroleum or Apache in the US. USA, They have entered more than 70 percent of their stock value since the beginning of the year. Wider companies like ExxonMobil and Chevron in the United States and BP, TOTAL, or Royal Dutch Shell in Europe are better able to withstand violent upheaval. They are less involved in the shale and gas business, have major refinery and petrochemical businesses, and are less indebted.
Focus on safe dividends
But multinationals are also under pressure. The British-Dutch Royal Dutch Shell has just taken out loans totaling $ 12 billion to secure the dividend in “uncertain times”. The world’s five largest oil companies, in particular, don’t want to spoil investors by cutting their distributions. “Shares in lmultis are bought primarily due to the sustained increase in dividends. Distributions are at the core of the investment philosophy,” said Allen Good, an expert at Morningstar rating agency.
Shell shares traded at a recent low during the stock market panic a few weeks ago with an unprecedented dividend yield of more than 14 percent. However, the price only increased after Royal Dutch Shell, similar to the other leading companies in the league, announced significant cuts in investments this year (see Investor Information).
Shell is investing € 20 billion this year a fifth less and also postpones planned share buybacks of $ 25 billion. Due to the repurchase of billions of own shares in the industry, which are later withdrawn, the amount of dividends is reduced, and therefore, the total amount distributed is also reduced.
Oil prices are currently favorable. Measured against key book price (KBV) and price-earnings (P / E) figures, the top five companies’ documents are about a third below their long-term average values. Cheap stock prices would actually be a good time to buy your own papers. However, giants in today’s environment are also forced to drive on sight. Cash on balance sheet and moderate debt are therefore valuable.
According to Goldman Sachs analyst Michele Della Vigna, large corporations are now “better prepared for the turmoil than during the 2014 recession.” With the exception of the Primus ExxonMobil, which must carry out a complex and expensive renovation, the other companies have reduced their equilibrium threshold since 2014 “by 30 to 60 percent each,” estimates Della Vigna. This means the price of a barrel of oil, from which investments and dividends can be financed with cash flow. The analyst estimates this threshold for four of the five largest corporations at $ 47 per barrel. At ExxonMobil, however, it was $ 80 due to the renovation.
survive on low prices
Furthermore, the groups have carried out stricter cost controls since 2015 and dispense with particularly risky projects. Your debt is also less. All of this creates leeway, which they will now use, like Shell right now, to earn safe dividends.
The first five can “survive two years with oil prices below $ 40 a barrel without exceeding their debt levels,” said analyst Della Vigna. If it gets worse, lmultis will offer part of their dividends in new shares: Scrip Dividends. Long-term committed shareholders often opt for this alternative.
Investor information
The giant’s top five
A fifth less than budget
A sustained recovery in oil prices from the current very low level is not predictable. In order to continue financing dividends at the previous year’s level, the five largest oil companies will cut planned investments for 2020 by $ 21 billion, about a fifth of the total amount.
Chevron
Low debt
The net debt of the second largest oil company in the United States corresponds to 19 percent of the capital employed. It is the lowest quota for large oil companies. For comparison: Royal Dutch Shell 34 percent, Exxon Mobil 28 percent, BP 36 percent. Chevron also cut investments and stopped the repurchase of shares to secure the dividend. Chevron is seen as a speculator in the expected consolidation of US slate developers. USA
According to experts, the British-Dutch oil company is testing rohl storage on special ships, each of which has around six million barrels. With an estimated $ 15.4 billion in dividend payments this year, Shell is one of the world’s largest dividend payers and # 1 in the industry. The distributions were not cut for 30 years in a row. This remains a priority. Promising
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