Thursday, 12 March 2020 08:36

Oil market can get new market mechanisms, analysts

As is known, the fall of oil prices on March 9 on the world oil exchanges at first glance negatively affects an activity of high tech private oil and gas companies. However, the analysis shows that this is not quite so.

Because, unlike public companies, private companies have a more flexible financial, technological structure for recovering from the “shock therapy” of markets.

As you know, the reason for the crisis was Russia's refusal to support the Organization of petroleum exporting countries (OPEC) in its plans to stabilize the oil market affected by coronavirus by further reducing production

As you know, the reason for the crisis was Russia's refusal to support the Organization of Petroleum Exporting Countries (OPEC) in its plans to stabilize the oil market, affected by coronavirus, by further reduction of production. Consequently, Saudi Arabia lowered its selling prices to regain market share and put pressure on Russia.

The final result of this price war was that price of Brent crude, the world's benchmark oil, fell to about down to $36 per barrel, compared to almost $60 fixed in mid-February.

In particular, Shell shares, after falling by 18% (they have fallen by more than 30% in less than a month), provided more opportunities for investors to buy shares, which will bring them good benefits in the long term.

According to analysts, early in 2016 the Brent oil price fell below 30 dollars per barrel on the background of an oversupply. At that period RDSB fell almost down to 1,250 points. However as the oil price recovered over the next year Shell's shares recovered significantly. Those, who bought shares when they were market favorites, were handsomely rewarded

Similarly, when the price of oil fell during the global financial crisis in 2008, RDSB shares fell to around 1,250 points. However, by 2011, stocks were traded at a much higher level amid higher oil prices.

It is important to note that Shell maintained its dividends in both cases, even though profits took a hit in the short term. Back then, investors not only benefited from the stock price recovery, they received a generous stream of dividends while waiting for the recovery.

At the same time, according to Motley Fool UK, it is important to understand that there are no guarantees that oil prices will recover in the near future.

Given the economic uncertainty associated with coronavirus, it is impossible to know how oil will work in the short term.

The risks of restoration of previous market positions, if Saudi Arabia sharply reduces production volumes (which is unlikely to happen) even against the background of restrictions on Iran's exports, are quite high.

In addition, high-tech private companies are not satisfied with the current price regulation within the OPEC and non- OPEC countries.

Therefore, the diversification of new energy sources, the introduction of new market indixes that reflect the Netback level of environmentally friendly sources of companies, will also reduce oil risks, increase the "safety cushion" and stimulate the market position of companies in the long term.

 

 

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