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Oil and gas. Which stocks should be included in your portfolio? — Finam.Ru

Oil prices jumped up. And there is a good reason for that. Tomorrow, October 5, offline meetings of the committee and all heads of OPEC + will be held in Vienna. The alliance is expected to decide to cut production.

At the same time, the situation on the energy market cannot be unequivocally called favorable for exporters. Today, October 4, gas prices in Europe at the opening of trading fell below $1,650 per thousand cubic meters. This is the first time this has happened since July 21st.

What is it connected with? How will oil and gas prices behave in the future? What should investors pay attention to?

Oil and OPEC+

Oil prices appear to have fully recovered from their fall last week. The momentum for growth in the quotes of “black gold” appeared with the beginning of a new week. The fact is that on Monday, October 3, traders learned about the plans of OPEC+. A group of the world’s largest oil producers, including Saudi Arabia and Russia, are considering severe production cuts at their meeting this Wednesday. Namely, by 1 million barrels per day on the eve of the heating season.

“The key local factor in the growth of oil prices, of course, is the expectation of a decision by OPEC + to reduce production quotas. The general local increase in risk appetite also affects, which also led to a slight correction in the dollar index, which is positive for all commodities,” he stressed. Sergey Kaufmananalyst at FG Finam.

Recall that yesterday the December futures for Brent oil pulled up by 4.4% – up to 88.86 dollars per barrel. And this afternoon the indicator has already reached almost $90 per barrel (+1%). This is a fairly significant rise, considering the fact that since its peak in June 2022, the benchmark has lost more than a quarter of its value. Recall that at that time oil prices mainly lowered inflation and the expectation of a recession in the US.

According to The New York Times, the Saudis are now pursuing the goal of fixing the cost of a barrel of Brent at around $90. And so far, judging by the auction data, they succeed. It is even possible, as Russian analysts are already predicting, that oil prices will go to $100 per barrel. Although it is not yet known what will contribute to this.

“In order to form a positive budget balance, OPEC countries will unequivocally strive not only to maintain current oil prices, but also to raise them above $90 per barrel,” he says. Alexander Millerindependent financial adviser.

It can be assumed that the cost of oil will continue to grow in the future with the introduction of an oil embargo against Russia. Also, do not forget that in three weeks the United States is finishing bringing oil from its strategic reserves (SPR) to the market. It is assumed that this factor will create an additional shortage of raw materials in the market. It is currently estimated at 1 million barrels per day.

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Also, don’t write off the conflict in Yemen. The Yemeni Houthis have threatened to resume strikes on Saudi Arabia’s oil infrastructure, which could also reduce production.

And Andrey Maslov, an analyst at FG Finam, also mentioned a number of factors. “The delay in negotiations with Iran and the overall energy crisis in the world,” he said.

As for the effect of speculation around a possible reduction in production by OPEC+ countries and some weakening of the dollar, analysts believe that it will not last long.

“Even in the event of a cut in production, the effect on the balance sheet will be small, as OPEC + quotas were chronically underfulfilled (the gap in September was 3.6 million barrels per day),” Finam.ru said. Ekaterina Krylova, managing expert of the Center for Analytics and Expertise of PSB. In this regard, she believes that fears of a slowdown in the global economy, and hence demand for energy, may soon come to the fore again. Oil prices, according to her forecasts, may rise to 92-93 dollars per barrel in the short term, and then settle in the 80-85 region.

If we nevertheless return to today, it is worth noting that the rise in oil prices, which happened as a result of rumors of a record reduction in production by OPEC +, had a favorable effect on stock markets around the world. Oil stocks definitely “caught a wave of recovery.” The American press, without too much modesty, called it a rally. So, on the eve of the paper Marathon Oil jumped 10.6% – this is the best indicator for the S & P 500, while shares of Devon Energy accelerated by 8.7%, and ConocoPhillips and Hess – both by more than 7%.

The rise in oil prices, of course, had a stabilizing effect on the Russian stock market as well. Oil companies of the Russian Federation ended yesterday’s trading in the “green” zone, as, indeed, almost all issuers included in the Moscow Exchange index. However, in this case, the primary role in this matter was played not so much by the positive dynamics of oil price growth as by the absence of new sanctions against Russia.

Gas and Gazprom

The “holiday”, which came to the commodity markets, however, bypassed Gazprom. So, on the eve of this company was the only one in the oil and gas sector, which showed a fall at the end of the day. On Tuesday afternoon, the gas company’s quotes also sag – by 2.4% as of 17:20 Moscow time.

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Despite a dividend payment announced last Friday, the gas giant’s shares have been under heavy pressure lately. Investors are puzzled by the uncertainty associated with the timing of the repair of the Nord Stream lines destroyed as a result of the explosion in the Baltic Sea. In addition, bidders were not pleased with the company’s production results for 9 months of 2022. Yesterday the company announced that production for the specified period decreased by 17%, and exports to non-CIS countries – by almost 40.5%.

And the troubles don’t end there. In recent days, gas prices have also shown a negative trend. And this morning in Europe, at the opening of trading, they fell below $1,650 per thousand cubic meters, losing more than 6% as much as possible. This happened for the first time since the end of July this year.

One of the reasons – demand was lower than expected by experts. It is likely that prices will continue to decline as stocks in the underground storage facilities of the EU countries approach the maximum. Now they are almost 90% full.

“Gas prices are under pressure from almost 90% filled UGS facilities in the EU and a significant degradation in demand, as a number of industrial enterprises are forced to reduce production volumes or even close due to higher gas prices. At the same time, it is important to understand that the current level of $1,700 per thousand cubic meters is also abnormally high for consumers, since historically the range of $200-300 was considered a normal price. Kaufman commented on the situation in the gas market.

It is also worth noting that currently gas consumption in the European Union has decreased with the onset of warm weather and an increase in the share of wind generation in electricity generation. And back in July, the EU countries agreed to reduce demand for gas from Russia by 15% over the next 8 months.

At the same time Miller in a conversation with Finam.ru, he recalled that prices are now under pressure from the EIA weekly report, published last Thursday. It showed that US natural gas reserves rose by 103 billion cubic feet to 2,977 billion. In addition, gas prices are declining, also due to record US natural gas production. “Natural gas production in 48 US states rose to a record high of 103.2 billion cubic feet last Sunday,” the expert said. In the States themselves, he said, domestic demand for gas has decreased due to power outages in the southeast of the country due to Hurricane Yan.

In the future, however, the situation on the gas market may change, and prices may change. “In gas prices, individual surges are possible, for example, if the Russian Federation completely stops transit through Ukraine or the winter is colder than the average. However, the degradation of demand and the high level of UGS occupancy will probably not allow prices to renew their August highs,” he added. Kaufman.

According to her colleague from PSB Krylovagas prices in the near future may stabilize in the region of 1400-1500 dollars per thousand cubic meters.

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Oil or gas

What should investors do? What stocks are worth paying attention to in the light of recent events?

“We believe that after the correction of recent weeks, Russian oil companies began to look interesting for purchases. Rosneft, Tatneft and Gazprom Neft are likely to continue to pay dividends and suffer only limited damage from the imposition of a European embargo on offshore oil supplies from Russia. NOVATEK also looks promising, benefiting from higher LNG prices and continuing to implement its key development projects,” said Kaufman.

Miller, for its part, takes the position that investors should now look at Western companies. It spins off Marathon Oil, APA Corp, and Devon Energy itself, as well as shares in Diamondback Energy, ConocoPhillips, Haliburton, Chevron, and Hess Corp.

“Average growth potential for these companies could be +11-12%. Autumn is only gaining momentum, and a long winter is still ahead. And all this is accompanied by an energy crisis in Western countries,” the expert explained his choice.

As for Gazprom’s prospects, here investors should pay attention to a number of factors. Firstly, now the company has actually been left without Nord Streams, which means that its hopes for restoring gas supplies to Germany can be completely buried. And secondly, as KaufmanGazprom will be pressured by an increase in the tax burden.

“Due to the loss of the European market and the growth of taxes, the company’s dividends for 2023 may amount to 10-20 rubles per share … In such a situation, Gazprom shares may continue to look weak in the near future if the company does not have the opportunity to restore exports to EU,” he said. Kaufman.

However, it is not necessary to completely write off Gazprom. It is recommended for purchase, for example, Krylova. The analyst highlights it as an interesting company in terms of dividend payments. She also includes Rosneft and LUKOIL as such, which can pay increased dividends for 2022 due to strong results.

“But the prospects for next year are vague, and NOVATEK will look better here as it has no problems with gas supplies abroad and plans to implement key LNG projects on time,” the expert summed up.

The message is for informational purposes and is not an individual investment recommendation or an offer to purchase the said securities. The acquisition of foreign securities is associated with additional risks.

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