OPEC Production Goes Up, These 5 Energy Stocks Go Down
After a heated meeting at Vienna last Friday, The Organization of the Petroleum Exporting Countries (OPEC) – the international cartel of oil producers – decided not to cut oil production especially in the already over-supplied crude market. The announcement sent West Texas Intermediate (WTI) crude to a below $40 per barrel mark − which was not at all unforeseen.
Quite naturally, the OPEC decision disappointed the beleaguered energy majors that are have been struggling for over a year to stay afloat amid low crude prices. Here we detail the fallout of the meeting and the effect that it had on five energy stocks.
OPEC Meeting
The market has been witnessing low crude prices since the second half of 2014. This was primarily owing to plentiful supply of the commodity amid lackluster global demand. Hence, a curb in production from the OPEC was most wanted to lift the already low crude price.
But after the meeting, OPEC decided to raise the ceiling of daily production from the prior level of 30 million barrels to 31.5 million barrels.The cartel was considering an output cut during the 7-hour meeting last Friday, but found that lowering of output only by the OPEC members will not be enough to lift oil prices. Non-OPEC players – contributing two-thirds of worldwide output – should also join OPEC in curbing production. An oil price recovery, it was decided, can only be effectuated by the combined strength of both the OPEC and the non-OPEC communities.
Looking back, there has been a war raging for market share among big oil producers like OPEC, the U.S. and Russia. Each of these markets has been pumping hard and competing for market shares, completely ignoring the downtrend in oil price. The war has further weakened oil prices to a great extent.
Hence, reducing supply is the only way to recover crude provided every big producer partakes in the drive. If OPEC happens to be the only block curbing output when other players continue to produce at their own lofty levels, that only thing that will happen is that Saudi Arabia-led OPEC will end up losing market share.
The above reasons justify OPEC’s decision against a production cut yet again and instead closely monitor the market.
Investors should note that according to some media sources, the recent move reflects OPEC’s intention to punish Iran – the country which is about to come out of sanctions very soon. In reality, when Iran starts producing oil at record levels, the country will go through an extremely weak oil pricing environment and may not see enough revenues.
Impact of OPEC Meeting on Energy Stocks
As already mentioned, crude plunged to settle below the $40 per barrel mark post meeting. WTI crude slipped nearly 3% to $39.97 per barrel. Definitely the energy firms having operations like exploration and production of crude will be hurt by the recent slide.
These energy companies have already been affected by low oil for a length of time. In fact, in an adverse business scenario, these companies have not been generating enough cash flows to support their operations. As a result, these players have cut thousands of jobs and have been forced to delay projects worth as high as $200 billion as per media reports. On top of that, they raised fund through debt to support their business and are thus saddled with huge debt loads.
Stock Impact
The OPEC meeting impacted the market again and sent the energy stocks further south. Among the affected players, five victims are Cobalt International Energy, Inc. CIE, Oasis Petroleum Inc. OAS, Whiting Petroleum Corp. WLL, Halcón Resources Corp. HK and Denbury Resources Inc. DNR. Cobalt International slipped 4.2%, Oasis Petroleum fell more than 5%, Whiting Petroleum decreased over 8%, Halcón Resources fell almost 15% and Denbury Resources plunged almost 10% on the NYSE.
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DENBURY RES INC (DNR): Free Stock Analysis Report
COBALT INTL EGY (CIE): Free Stock Analysis Report
HALCON RESOURCS (HK): Free Stock Analysis Report
OASIS PETROLEUM (OAS): Free Stock Analysis Report
WHITING PETROLM (WLL): Free Stock Analysis Report
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