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Energy stocks surge as OPEC+ denies oil output increase discussions

Oil producer stocks rallied after OPEC+ members denied reports they were forecasting higher supply

Energy stocks rise as OPEC+ denies oil production boost talks and Citigroup improves BP forecast

  • Oil stocks fell yesterday on rumors that OPEC+ was considering a supply hike
  • But officials have now denied that report leading to a rebound
  • Citigroup lifted its BP recommendation from “hold” to “buy”

London-listed energy stocks rebounded strongly after OPEC+ members confirmed they were not currently discussing an oil production boost.

BP, Shell and the FTSE 100’s Harbor Energy were among the index’s biggest losers on Monday as crude oil prices fell following reports that Saudi Arabia and other producers were in talks to approve an increase in production.

But ministers from Saudi Arabia, the United Arab Emirates and Kuwait have now separately denied the reports, leading to a 0.4% rebound in WTI crude prices to $80.40 a barrel, as the UK energy sector has jumped 3.5%.

Shell and Harbor Energy were among the top gainers on the FTSE 100, adding 4% and 7.1% respectively by midday.

On the FTSE 250, shares of Tullow Oil gained 4% and energy services company Wood Group rose 3%.

BP was up, up 5.8%, as it was further boosted by bullish analysis from Citigroup, which raised its recommendation from “hold” to “buy”.

Energy stocks have performed strongly this year, buoyed by soaring energy prices following Russia’s invasion of Ukraine, with BP and Shell adding 38% and 37.8% respectively since the start of the year. 2022.

But shareholders fear that this race could end abruptly if the price of oil falls sharply, which could also worsen the financial impact of the exceptional taxes on these companies.

Shell chairman David Brunch warned on Monday that the energy giant would review its £25billion UK investment plans on a case-by-case basis after the government increased its windfall tax on oil producers and North Sea gas from 25 to 35%.

He said some producers – those largely focused on the North Sea, unlike Shell which has a much larger operation across the world – would be at greater risk than others.

Head of Investments at Interactive Investor Victoria Scholar said: “The outlook for oil prices is unclear and this exceptional period may not last.

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“Although Shell can now afford the windfall tax increase, oil prices could drop significantly by 2028, when the end of the tax will have been extended until.” Remember that in 2020 oil demand collapsed and prices fell, putting energy companies under pressure.

“If another demand shock occurs, Shell’s profits could fall with it, which may be why the company may not want to be tied to billions of pounds of long-term capital projects. , especially at a time when the world is trying to move away from its dependence on fossil fuels.

Meanwhile, oil prices are trading higher, also helping lift BP and Shell to the top of the FTSE 100 after Saudi Arabia denied a report that OPEC+ was considering a production hike during its next meeting, which sent oil prices plummeting on Monday.

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, added: “Shell’s warning that it is currently reviewing its North Sea projects and across its renewable energy programs due to the The extension of the windfall tax will make hard reading for Chancellor Jeremy Hunt…especially given concerns that the autumn statement did not do enough to spur growth through investment.

“BP’s warnings earlier in the year about the possibility that it could forfeit certain spending commitments did not materialize, although that was when the windfall tax was not expected to remain in place. place only until 2025. Now the tax has been extended and increased, it’s little surprise that new reviews are on the way.

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“However, Shell’s outgoing CEO, Ben van Beurden, has indicated that the burden of helping the poorest in society should fall on the sector and given that Shell’s new CEO, Wael Sawan, comes from the energy division renewables, any reduction, especially in cleaner and greener projects, is still likely minimal.

“The risk of oil and gas companies falling into the ethical trash can if such projects are delayed will also play on people’s minds, especially given the new stark warnings issued at COP 27.”

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