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I am finding it difficult to stray too far from the subject of oil, post the OPEC conference. It’s absurd to think that the reactions, responses and fallout are going to stop just because the headlines point us to the next big story.
The immediate aftermath was highly predictable as investors thought the sky was falling on Monday. Pay attention, chaps, it wasn’t the sky. It was the price of oil tumbling to a five-year low. And the Russian ruble falling right along with it.
Ones We Know Are Afraid
Russia desperately needed relief from the western sanctions imposed upon it as a result of the situation in the Ukraine. Yesterday the Russian ruble suffered its greatest, single-day plunge since 1998. We will probably never know if, or how much, the sanctions played a role in OPEC’s decision to not cut back production and drive prices higher. The most influential members of OPEC play things pretty close to their vests. But, we wouldn’t be too much mistaken to think that there were some backroom politics going on that made the sanctions of a matter for consideration. The burning question of how raising prices would effectively ease the effect of those sanctions had to be asked and answered somewhere in the general vicinity of those meetings.
As I mentioned yesterday, the leadership of countries like Oman and Venezuela have got to harbor some angst, if not outright fear, for what may happen over the next six months until the oil cartel meets again. Those who are most afraid, at least at this point, are the ones whose economies are most dependent upon oil exports. In my humble opinion, these countries will probably find more than solace from fellow OPEC members to help them weather the storm.
Small oil producers who are operating close to the bone are afraid. They do not need falling oil prices to cut into their profitability.
Ones We Know Are Not Afraid
I would place Chevron (NYSE:CVX) at or near the top of this list. The company began pumping from a deepwater (don’t let that word scare you) deposit beneath the Gulf of Mexico that has been left dormant for the entire 10 years since its discovery. The half-billion deposit is expected to produce profitably for a minimum of 30 years. Do you think that the powers-to-be at Chevron are unaware of OPEC? I don’t. I believe that they see this as an opportunity to seize the day and be in position to deliver the goods when oil prices rise again. CVX’ share price closed up 2.05% today at 114.02, coming off a 52-week low of 106.65.
Then there are BP (LSE:BP.) and Shell (LSE:RDS.A). Aside from the fact that BP announced a share repurchase plan today, the chief rumor making the headlines in the oil sector, the stock market and the world in general is that the two companies will soon announce that they are entering into some form of an M&A agreement. Although the rumors are without official substantiation, investors reacted by boosting BP’s share price by 4.67% to 433.85 pence and Shell’s 2.76% to $69.35 on the NYSE.
Finally, and only due to limited space and time, ExxonMobil (NYSE:XOM) returned to $94.19, recovering nearly fully since the general sector slide following the OPEC meeting. This uptick, although a part of the general resurgence today was helped by an advisory letter to ExxonMobil shareholders from Bank of America/Merrill Lynch advising that they expect Brent crude to remain between $70 and $75 throughout 2015. Just to put some perspective on that, BofA/ML also downgraded at least one other oil firm today, Transocean (NYSE:RIG), signalling that we have only begun to see the ripples that OPEC has set in motion.
