Russian Oil Companies Eye Price Stability In 2019

Russian energy companies’ stocks could stage a rebound in the first half of 2019, after facing pressure from recent market volatility and rout in oil prices.

Although the cost of crude has been on a downward trajectory since October, it reversed course somewhat Wednesday following reports over the Christmas Day holiday that Russian Energy Minister Alexander Novak said prices could stabilize in the first half of 2019.

Novak’s optimism is largely attributed to joint efforts by the Organization of the Petroleum Exporting Countries (OPEC) and Russia-led non-OPEC producers to curtail supply. The international oil producing consortiums agreed earlier in December to cut their combined crude output by 1.2 million barrels per day from January.

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While the market to date has not been completely impressed by the move, the current crude oil contract rose around 8.7% to US$46.22 Wednesday before falling back again Thursday morning.

Although elevated oil prices earlier in 2018 generally helped Russian oil companies benefit from increased sales, the recent plunge in the cost of crude and slower economic growth in the country have contributed to a bout of deterioration in their equity.

Crude oil has plunged a little more than 44% since its 52-week peak in October, with Monday having set a new low for the year at US$42.53.

Against this backdrop, Gazprom Neft’s (OTC: GZPFY) GDRs have shed roughly 15.9% of their value since their 52-week high of US$30.175 set in mid-October, while Rosneft’s (MCX:ROSN) stock has plunged around 20% over roughly the same timeframe.

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Elevated hurdles

Meanwhile, Russia continues to find itself beset by a host of global challenges, which is likely to hamper progress among its non-financial corporates in the near-term.

Fitch Ratings analysts Nikolai Lukashevich and Tatiana Kordyukova recently noted that as Russia’s economy remains dependent on commodities sectors, softer pricing expectations “implies revenue contraction for export-focused commodity producers.”

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Disclosure: The author does not hold any positions in the financial instruments referenced in the materials provided.

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