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02 Mar 2022
Investec UK Daily: 02/03/2022
Aviva plc (AV:LON), 463 | Capricorn Energy PLC (CNE:LON), 170 | Challenger Energy Group PLC (CEG:LON), 0.2 | Diversified Energy Company PLC (DEC:LON), 1,160 | Energean Plc (ENOG:LON), 1,133 | Harbour Energy Plc (HBR:LON), 297 | Hiscox Ltd (HSX:LON), 1,227 | Jadestone Energy PLC (JSE:LON), 27.5 | Kosmos Energy Ltd. (KOS:LON), 474 | Persimmon Plc (PSN:LON), 1,325 | Pharos Energy PLC (PHAR:LON), 23.2 | Reach plc (RCH:LON), 75.4 | Seplat Energy PLC (SEPL:LON), 166 | Serica Energy PLC (SQZ:LON), 202 | Travis Perkins plc (TPK:LON), 762 | Tullow Oil plc (TLW:LON), 36.2 | Vistry Group PLC (VTY:LON), 1,190 | Weir Group PLC (WEIR:LON), 2,036
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Investec UK Daily: 02/03/2022
Aviva plc (AV:LON), 463 | Capricorn Energy PLC (CNE:LON), 170 | Challenger Energy Group PLC (CEG:LON), 0.2 | Diversified Energy Company PLC (DEC:LON), 1,160 | Energean Plc (ENOG:LON), 1,133 | Harbour Energy Plc (HBR:LON), 297 | Hiscox Ltd (HSX:LON), 1,227 | Jadestone Energy PLC (JSE:LON), 27.5 | Kosmos Energy Ltd. (KOS:LON), 474 | Persimmon Plc (PSN:LON), 1,325 | Pharos Energy PLC (PHAR:LON), 23.2 | Reach plc (RCH:LON), 75.4 | Seplat Energy PLC (SEPL:LON), 166 | Serica Energy PLC (SQZ:LON), 202 | Travis Perkins plc (TPK:LON), 762 | Tullow Oil plc (TLW:LON), 36.2 | Vistry Group PLC (VTY:LON), 1,190 | Weir Group PLC (WEIR:LON), 2,036
- Published:
02 Mar 2022 -
Author:
Aynsley Lammin | Alastair Reid | Ross Broadfoot | Ben Bourne | Scott Cagehin | Nicola Mallard | Ben Cohen | Thomas Rands, CFA | Alex Smith | Nathan Piper -
Pages:
15
Oil Market Tightening: Sanctions alongside companies trying to avoid the risk (commercial and reputational) of dealing in Russian oil exports resulted in the oil price spiking 10% to $110/bbl (up 40% YTD). This was highlight by shipping lines Maersk, Hapag-Lloyd and others announcing they will not be taking further Russian oil shipping contracts. Additionally Russian shipper Sovcomflot (largest owner of medium sized tankers) is encountering challenges as the UK refuses Russian registered vessels and the company is impacted by US sanctions. Indeed, some banks are reportedly refusing to deal in Russian oil even if current sanctions technically allow it. Russia is the third largest oil producer, exporting 5mb/d oil and c.3mb/d petroleum products. Estimates are that between 2-4mb/d are failing to find buyers, despite the main Urals export benchmark crude discount increasing from less than $1/bbl in late January to close to $19/bbl.
Additional OPEC+ Increase Unlikely: OPEC+ (that includes Russia) is holding the ONOMM monthly meeting today, where, despite pressure, the expectation is the group will add back 0.4mb/d (of the 2020 production cut) from April. Indeed, OPEC+ remains 0.7mb/d behind previous quota increases as of January. However, given developments around Russian exports, there will be increasing focus on actual OPEC spare capacity. The <4mb/d spare capacity sits largely with Saudi Arabia, UAE and Kuwait, with studies by the OEIS suggesting spare capacity could be 1.3mb/d lower based on maximum historical production levels.
IEA not enough: Yesterday the market shrugged off the announcement that the IEA was coordinating the release of 60mbbls (2mb/d over the next month) from emergency reserves (1.5bnbbl total stockpile). To make an impact, more will be required for longer, although OECD inventory levels are back to lows last seen in 2015 with oil demand reaching c.100mb/d, exceeding pre-COVID levels.
Iran to the Rescue as US Shale Maintains Discipline? US production growth is expected to remain muted (EIA forecasts c.0.5mb/d growth y-o-y). The US industry is remaining disciplined around capex; 522 oil rigs active compared to almost 900 oil rigs in 2019 when the oil price averaged $64/bbl. Surprisingly, the potential of a nuclear deal with Iran could provide the most material supply surprise through 2022. On agreement, Iran has the potential to add back around 1mb/d, sufficient to at least ease the highest oil price for eight years.
Surging UK Gas Price: The UK Gas price closed yesterday at c.300p/therm ($39/mcf or $235/boe) up 75% YTD on gas supply disruption concern. Russia provides 40% of EU gas demand transported by pipelines, including 20-25% gas exports to Europe transiting Ukraine (volumes are recent highs). Significantly, for UK consumers, the gas price remains materially above the 126p/therm UK gas price included in the April energy price cap increase.