Taal selectie


Shale is the name of the game

The oil price rose 9.3% in June, to close the month at USD 58.47 per barrel (WTI). The XOP index of US shale oil & gas producers gained 6.4%, while our selection was up 8.3%.

WTI XOPSource : Bloomberg

US crude oil inventories finally receded in June (down 15 million to 468.5 million barrels), as refineries increased their runs after the spring maintenance season (that was required to shift production from heating oil towards gasoline for the summer driving season).

With OPEC and Russia having agreed to pursue their crude oil production cuts through at least the end of this year, Iranian exports evaporating due to US sanctions, and US shale oil companies remaining disciplined – investing only their free cash flow into new production –, inventories are likely to shrink further during the coming months. That said, a hick up might occur in the very near term because of the shutdown of the largest East Coast Refinery, which just suffered a blast and fire. Crude oil already on its way to this refinery will need to be stocked for some time. Conversely, petroleum products stocks should undergo a drain.

Even though this incident will have only a short-term impact, hedge fund managers might again use it as reason to speculate against the oil price.

In any event, and absent a global economic recession, odds are in favour of a (much) higher oil price towards the end of the year; also because of the non-negligible additional demand to be expected from the worldwide shipping sector, for which an engine shift to low sulphur fuel oil or marine diesel oil will be mandatory as of January 1st, 2020.

Meanwhile, shale oil companies remain very undervalued, with their shares trading on average at an expected 2019 EV/EBITDA* of less that 5x and a 33% discount to net asset value*.

Given the current “truce” in the US-China tariff war and with negotiations having resumed post the G20 summit, a trade agreement still seems possible. Such an outcome would be very welcome for global economic growth (and hence of course also for oil demand).


*Computed using a long-term oil price estimate of ca. USD 60 per barrel

(Update : 07.2019)

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