Sanctions against Russia Escalate, Oil Prices Break Out Again | Habit Security Intelligence
The United States’ imposition of an oil ban on Russia has brought oil stocks into a “window period” once again. Buffett’s heavy investment in Occidental Petroleum $OXY has attracted market attention. In the short term, it may face a correction after the skyrocketing. In the medium term, the imbalance of crude oil supply can be a good kicker for the stock prices.
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With the escalation of the Russia-Ukraine incident, oil stocks once again ushered in a “window period” for the outbreak, mainly due to 3 factors:
1. U.S. imposes oil ban on Russia
Due to the geopolitical conflict between Russia and Ukraine, Europe and the United States continue to increase sanctions against Russia, removing seven major Russian banks from the SWIFT system, but carefully exempting two commercial banks deeply involved in Russian oil and gas trade, Sberbank PJSC and Gazprombank.
On last Saturday, a bipartisan U.S. bill seeking to ban oil and gas imports from Russia gained the support of 22 members of the U.S. Senate. On Sunday, U.S. Secretary of State, Blinken, said the United States was working with European allies on the possibility of banning Russian oil imports.
This means that the United States has banned the import of Russian oil, which has caused imbalances in the global crude oil market and increased supply panic.
Rystad Energy, one of the world’s largest energy consulting and research firms, expects Russian oil exports to fall by as much as 1 million barrels per day, and the net impact of replacing these supplies with limited spare capacity in the Middle East is that oil prices may continue to climb, possibly exceeding $130 a barrel, mitigation measures such as the U.S. Strategic Petroleum Reserve (SPR) cannot bridge the gap.
JPMorgan warned in a February report that if Russia’s oil exports were cut in half, oil prices would jump 41% to $150/barrel.
2. OPEC’s production increase is limited
Crude prices rose after several OPEC members failed to raise monthly output as planned. According to IEA data, OPEC production increased by just 250,000 bpd in December (a completion rate of 63%). Low investment over the past few years and recent geopolitical events may hurt OPEC’s actual production capacity, which in turn affects the realization of the production increase plan.
3. Iran nuclear deal is near
Iran and the US are on the verge of The Nuclear Deal that could help release tens of millions of barrels of Iranian crude into global markets. It is reported that Iran has tens of millions of barrels of oil stored on tankers at sea that can be shipped to customers in time after the agreement is reached. At the same time, it will boost the field’s production. Iran, once OPEC+’s second-biggest producer, is likely to return to around 1 million barrels a day of crude output within months of the deal. By next year, the country is likely to recover to around 3.7 million barrels per day.
On Mon, March 7, international crude oil futures soared, reaching the intraday high since July 2008. Brent crude oil once approached $140 and rose nearly 18% on the day. The average U.S. regular gasoline price hit $4.065 a gallon on Monday, the highest level since July 2008, according to the AAA (American Automobile Association).
The panic effect in the global oil market has intensified, forcing oil stocks to rise collectively during the pre-market on March 7. Occidental Petroleum $OXY rose by nearly 9%, Callon Petroleum $CPE and Apache Oil $APA rose by more than 4%, and Marathon Oil $MRO rose by more than 3%.
Occidental Petroleum $OXY
1. Buffett’s buying
Before the battle for crude oil, Buffett’s Berkshire Hathaway $BRK increased its position in $OXY, increasing the proportion of its investment in traditional energy giant Occidental Petroleum. Buffett spent $4.5 billion over five trading days last week, buying 91.2 million shares, or about 10% of his total equity. Because of Occidental’s operating earnings, debt repayments, dividend increases, and focus on generating long-term, sustainable free cash flow, the company’s improved outlook, coupled with a surge in energy prices due to the Russian-Ukrainian conflict, has pushed its shares up 70% this year.
2. Extensive business
Occidental Petroleum Corporation was established in 1920 and is headquartered in Houston, Texas, USA, mainly exploits oil and natural gas. With operations in the United States, the Middle East, North and South America, Occidental Petroleum is the fourth largest oil and gas company in the US.
3. Raised target prices
Tudor Pickering & Co adjusted the target price of $OXY from $55 to $69. MKM Partners, Wells Fargo, Citi, and other institutions have also upgraded the ratings before, however, as of the close of March 7, $OXY price has exceeded their target prices. In the short term, it may face a correction after the skyrocketing. In the medium term, the imbalance of crude oil supply will benefit the stock price.
All investments involve the risk of potential investment losses as well as the potential for investment gains.
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