Shares in listed oil companies received a boost from higher prices this week, despite a pledge from the Organization of the Petroleum Exporting Countries (Opec) and 11 non-Opec nations to raise output from July. The uptick – in effect a return to 100 per cent compliance with cuts agreed in November 2016 – was agreed at a meeting of the so-called “Opec-plus" group last Saturday (23 June), and could see global production rise by 1m barrels a day (mmbopd) from nations with spare capacity.
Saudi Arabia looks best placed to benefit. Conflicting reports have suggested state oil company Saudi Aramco could lift its output by 8 per cent to 10.8mmbopd next month, which would be well beyond its cap. Despite this nominally bearish news, Brent crude edged up to $77 (£59) a barrel on Wednesday, as traders made bets that capacity shortages and supply issues elsewhere would offset any rise from the Kingdom.
Venezuelan output continues to be in freefall, there are concerns around the exports from Libya, and the US State Department has indicated it will take a hard line against any countries that continue to purchase oil from Iran, once sanctions come into effect in November. While most of the Islamic Republic’s 3mmbopd of exports are destined for Chinese, Indian and Korean markets, it remains to be seen whether those countries will shrug off US warnings, as they largely did the last time sanctions were imposed in 2012. Without waivers, European buyers might be less prepared to take the risk.
Firm oil prices have inevitably led to big gains for producers, Gulf Keystone Petroleum (GKP) among them. Prior to the meeting, shares in the once-embattled driller had already more than doubled in 2018, but have since found another leg of support after the company, partner MOL and the Kurdistan Regional Government agreed to increase their investment in the key Shaikan field.
Last week, the consortium signed off on plans to invest up to $215m to raise output by 55kbopd over the next year-and-a-half. The company will hope that news, alongside a positive operational update, will entice fixed-income investors to take up a $100m five-year unsecured bond issue.
