Supermajors have had a great year so far, and their third-quarter results, to be released over the next couple of weeks, are likely to strengthen this impression. But this does not necessarily mean that investors will reward them. Investors have become a lot more careful in the past few years, and chances are they will want to see more proof of post-crisis flexibility and strict cost discipline before stock prices reflect an increase in trust.
On the face of it, Exxon, Shell, Chevron, and their likes have everything going for them: oil prices are higher, free cash flow is coming in at higher rates, and there have even been a few discoveries, most notable among them Exxon’s 4-billion-barrel elephant off the coast of Guyana. But Big Oil still needs to be cautious.
In a recent article for 24/7 Wall Street, its senior editor Paul Ausick noted the heightened prospects of even higher oil prices after a Reuters report revealed that OPEC has been having trouble lifting production by the promised 1 million bpd. From May to September, the cartel’s combined production plus Russia’s had fallen well short of that figure because of production declines in Venezuela, Iran, and Angola, among others. These, the internal OPEC document that Reuters saw, offset some substantial output hikes from Saudi Arabia, Russia, the UAE, Iraq, and Kuwait.
What this means is that there seems to be less spare capacity than optimists believed. This, in turn, means prices are likely to climb further, despite a fresh assurance from Treasury Secretary Steven Mnuchin that traders have already factored in the U.S. sanctions against Iran. Mnuchin’s warning that Washington will insist on importers cutting Iranian crude imports by more than 20 percent most certainly has not helped rein in prices, though its effect has yet to be fully acknowledged.
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