Jump to content

FTSE 100 oil stocks could turn volatile as pressure builds in Ukraine


Recommended Posts

Shell and BP shares could soar as oil prices continue to rise. But both are exposed to volatility if Russia chooses to cut production.

oil
Source: Bloomberg
 
 

Oil stocks have soared so in 2022. And this was before the escalation of current hostilities in Ukraine. The onset of the covid-19 pandemic crash saw lockdowns around the developed world. By mid-April, Brent Crude fell below $20 a barrel, while WTI Crude Futures fell below $0 as a price war erupted between Saudi Arabia and Russia.

The interconnected, globalised economy suffered its first universal shock. But by January 2021, Brent Crude had recovered to its pre-pandemic price point of around $60. And as the world’s economies reopened, the demand for all forms of energy surged, leaving suppliers struggling to increase output.

US Energy Information Administration data shows ‘commercial inventories in the OECD ended the month at 2.68 billion barrels, which is the lowest level since mid-2014.' Brent Crude is now hovering just under $100. Before recent geopolitical developments in Ukraine, the Bank of America Corp was predicting $120 by the end of June. But now, it could rise far higher.

Oil stocks and the Ukraine crisis

A brief precis: Russian President Vladimir Putin has given a speech declaring the Minsk peace agreement void and has questioned the right of Ukraine to exist as a sovereign state. He has authorisation from the Russian Parliament to deploy armed forces abroad and amassed at least 150,000 troops on Ukraine’s borders. Russia says these troops will be ‘peacekeepers,’ claims denounced as ‘nonsense’ by the US.

A full-scale invasion of Ukraine could be imminent. Of course, de-escalation is still possible. But without knowing Putin’s motives, it’s impossible to know how far the situation will deteriorate. Ukraine is in a state of emergency, is conscripting reservists, and is already under cyber-attack.

Russian banks, MPs, oligarchs, and sovereign debt have all been targeted by Western sanctions. Most significantly, Germany has halted the approval of Nord Stream 2. US President Jo Biden has warned Russia will ‘pay an even steeper price if it continues its aggression.’ Two years ago, former President Trump previously placed sanctions on US oil giant Rosneft. And the UK’s Boris Johnson has said ‘there is more to come.’

In response, Russia’s Foreign Affairs Ministry has warned of a ‘painful’ response to US sanctions, warning it would target ‘sensitive’ US assets. Former Russian President Dmitry Medvedev has already threatened a ‘brave new world’ which would see already sky-high gas prices double across Europe.

bp
Source: Bloomberg

Where next for FTSE 100 oil stocks?

Both BP and Shell recorded bumper profits in 2021; BP made $12.8 billion, while Shell generated $19.3 billion. BP CEO Bernard Looney has called the company a ‘cash machine,’ and there could be more cash to be made. The companies are predicted to make a combined $55 billion profit in 2022 leading to widespread calls for windfall taxes.

But now Nord Stream 2 is staying closed, perhaps permanently. While only 3% of the UK’s gas needs are met by Russia, the increased demand for alternative sources like Liquefied Natural Gas (LNG) will send the gas price sky-high. This will have a knock-on effect on oil, as countries turn to relatively cheaper alternatives.

However, a bigger impact on oil stocks could come on 2 March. The Organisation of Petroleum Exporting Countries and its partners (OPEC+) is convening their monthly meeting to decide April’s strategy. The current strategy is to add 400,000 barrels of crude oil a day to the markets to maintain high prices while steadily raising supply.

But Clearview Energy Partners believes Putin could retaliate by cutting oil production under the guise of plausible deniability. This could include cutting oil exports but blaming it on cyberattacks or conflict damage. However, Reuters has reported a Senior US State Department official stressing that ‘sanctions…are not targeting and will not target oil and gas flows.’

BP has the most to lose if Russia cuts production. It owns nearly 20% of Rosneft, and Looney sits on the Russian company’s board. It contributed $2.4 billion in profits to BP in 2021, and about a third of BP’s oil production came from Russia last year. Shell is less invested; while maintaining a stake, it was forced to cede control of its LNG project on Russia’s Sakhalin Island to state-owned Gazprom in 2006.

The FTSE 100 oil stocks could soar as oil prices rise. But as the conflict deepens, nobody could be the winner.

Go short and long with spread bets, CFDs and share dealing on 16,000+ shares with the UK’s No.1 platform.* Learn more about trading shares with us, or open an account to get started today.

* Best trading platform as awarded at the ADVFN International Financial Awards 2021

Charles Archer | Financial Writer, London
24 February 2022

  • Like 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Dopamine emerges as a beacon of innovation in the world of cryptocurrency management, offering a non-custodial, secure, and anonymous mobile app wallet. With over two million downloads and a robust user base, Dopamine is reshaping the landscape of decentralized finance (DeFi) on both Android and iOS platforms. Let's delve into the features and functionalities that make Dopamine a must-have tool for navigating the cryptocurrency market. Key Features: 1. Comprehensive Portfolio Tracking: Dopamine's native token, $DOPE, empowers users to monitor their favorite projects from a vast collection of over 10,000 coins, ensuring informed decision-making in the dynamic crypto market. 2. Enhanced Security Measures: With built-in Anti-Money Laundering services, Dopamine enables users to safeguard their assets by identifying potential fraud and assessing risk scores associated with their wallets. 3. Real-Time Market Insights: Stay ahead of the curve with Dopamine's ability to track market trends and identify coins making significant moves, ensuring users remain informed and proactive in their investment strategies. 4. Cross-Chain NFT Transactions: Seamlessly send and receive NFTs across various blockchains, including Ethereum, BSC, Fusion, and more, providing users with unparalleled flexibility and interoperability. 5. Efficient Information Management: Dopamine simplifies data management by allowing users to save essential information and access it instantly, streamlining their crypto journey with convenience and ease. 6. Convenient Fiat On-Ramp: Facilitating seamless transactions, Dopamine enables users to buy crypto directly from their credit or debit card within the app, eliminating the need for multiple platforms and intermediaries. 7. DeFi Gaming Integration: Dive into the exciting world of decentralized finance gaming with Dopamine, offering users access to a diverse range of DeFi games directly from the app, adding a touch of entertainment to their crypto experience. With its innovative features, commitment to user empowerment and upcoming listing on Bitget exchange, Dopamine stands as a revolutionary platform that caters to the diverse needs of cryptocurrency enthusiasts. As the cryptocurrency market continues to evolve, It remains at the forefront, providing users with a secure, versatile, and intuitive solution for managing their digital assets and exploring new horizons in decentralized finance.
    • Name of stock: Adventus Mining Name of Stock Exchange: TSX Leverage or Share dealing: Share dealing Ticker: ADZN Country of stock: Canada
×
×
  • Create New...
us