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Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

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  • Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

Energy shares led stocks in Europe lower, the Russia ruble weakened and oil touched a one-month low after the world’s biggest crude producers failed to agree to supply cuts at a meeting in Vienna. U.S. equity-index futures and Mexico’s peso clawed back some of their losses from Friday triggered by the FBI’s reopening of an inquiry into Hillary Clinton’s e-mails.

A gauge of energy companies on the MSCI All Country World Index slipped for a second day after the Organization of Petroleum Exporting Countries ended two days of talks on Saturday without agreeing any individual quotas.

Russia’s ruble declined while the South African rand surged after prosecutors withdrew charges against Finance Minister Pravin Gordhan. Perceived investment-grade credit risk was set for the longest run of increases since May.

The OPEC talks yielded little more than a promise that the world’s top oil producers would keep discussing ways to stabilize the market. Sovereign bonds were relatively muted Monday as investors awaited key central bank meetings from the U.K. and U.S. later in the week. Global equities lost ground in October and government bonds also slid amid speculation the Federal Reserve will hike interest rates this year.

“Oil companies are reacting to OPEC news,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “We have a huge week of data, biggest in a long time. So people are positioning for what’s expected to be a pretty important week.”

Stocks

The Stoxx Europe 600 Index dropped 0.5 percent as of 7:19 a.m New York time, set for a sixth day of declines, the longest losing streak since February. The benchmark has fallen 1.1 percent in October, a month that has yielded gains in five of the past six years.

BP Plc and Tullow Oil Plc fell more than 1 percent, dragging a measure of energy companies to the worst performance of the 19 industry groups on the Stoxx 600, as oil declined after European markets closed Friday.
Miners gained the most on the index as metals prices advanced. Centamin Plc led the charge after saying it sees gold output near the upper end of its 2016 forecast.

WPP Plc led media companies higher, rising 4.1 percent after the world’s largest advertising company posted an increase in quarterly sales. Sika AG jumped 14 percent after a Swiss court backed its bid to block a takeover by Cie de Saint-Gobain. Shares in its French rival dropped 0.8 percent.

S&P 500 Index slid 20 points in about 40 minutes on Friday amid news the Federal Bureau of Investigation was again looking into Clinton’s use of private e-mail while secretary of state, an issue that has dogged her presidential campaign.

Futures on the gauge advanced 0.1 percent, indicating equities will rebound from Friday’s retreat to a six-week low. Investors will look to data Monday on personal income and spending for indications of the health of the U.S. economy as the Federal Reserve prepares to meet.

Among stocks moving in premarket New York trading, Baker Hughes Inc. gained 9.1 percent after General Electric Co. agreed to combine their oil and gas businesses to bolster their operations amid the global slump in crude prices. General Electric added 0.3 percent. Level 3 Communications Inc. climbed 3.9 percent after agreeing to a $34 billion cash-and-stock takeover offer from CenturyLink Inc.

For more news on the latest probe into Clinton’s e-mails, click here.

Commodities

Crude oil fell 0.6 percent to $48.40 a barrel in New York, trading near the lowest since the end of September. Oil has fluctuated near $50 amid skepticism about whether OPEC can implement the first supply cuts in eight years at an official meeting in November.

“Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.”
Gold was little changed at about $1,274.13 an ounce after rallying 0.6 percent on Friday.

Aluminum and zinc extended gains in Shanghai as investors bet that strong domestic demand, surging coal prices and logistical issues will underpin prices. Aluminum rose to its highest since September 2014, having jumped by about 10 percent last week, and zinc climbed to levels last seen in March 2011.

Currencies

The rand jumped 1.8 percent as South Africa’s Chief Prosecutor Shaun Abrahams announced that fraud charges against the finance minister have been dropped, two days before he was due to appear in court.

The Bloomberg Dollar Spot Index has climbed more than 2 percent this month, set for the biggest gain since May.

While the Fed is seen leaving policy unchanged at a review this week, futures prices indicate a 69 percent chance of an interest-rate hike at its December meeting, up from 59 percent at the end of September.

The ruble fell 0.2 percent, declining for a second day and set for its first monthly drop in three.

Mexico’s peso advanced 0.4 percent as Clinton’s allies escalated attacks on FBI Director James Comey to stem political damage from his disclosure last week the agency is reviewing files related to a probe of her e-mail practices.

South Korea’s won traded near a three-month low as President Park Geun-hye deals with an influence-peddling scandal that’s sparked calls by the ruling party for her to remove the prime minister. Prosecutors raided Park’s office over the weekend to investigate allegations her close friend Choi Soon-sil — a private citizen whom opposition lawmakers have linked to a religious cult — wielded influence on state affairs over an extended period.

China’s yuan strengthened 0.2 percent, paring its biggest monthly loss since May. It advanced from near a six-year low following Friday’s retreat in the dollar and as China’s clampdown on UnionPay payments for insurance products in Hong Kong provided support. The transactions have been used as a means of skirting capital controls to take funds out of the mainland.

Bonds

The yield on Treasuries due in a decade was little changed at 1.84 percent, after touching a five-month high of 1.88 percent on Friday. Sovereign debt in the world’s biggest economy has lost 1.2 percent on average this month, the worst performance since February 2015, a Bloomberg index shows.

Germany’s 10-year bond yield was at 0.16 percent, up 28 basis points this month, which would be the biggest increase since May 2013.

Spanish 10-year bond yields were little changed at 1.23 percent, after Mariano Rajoy claimed a second term as prime minister by winning a confidence vote on Saturday night, ending a 10-month political impasse.

The cost of insuring investment-grade corporate bonds against default climbed for a fifth day. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies rose one basis point to 73 basis points, a two-week high. A gauge of swaps on junk-rated corporate issuers rose for a fifth day, the longest run since June. It added three basis points to 332 basis points.

China’s one-year interest-rate swaps rose five basis points to an 18-month high of 2.76 percent in Shanghai. The increase reflects speculation policy makers will seek to keep money rates high as they tackle asset bubbles and try to stem declines in the yuan.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Seplat Energy Plc Records $535 Million in Revenue in the First Nine Months of 2021

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Seplat Energy Plc - Investors King

Seplat Energy, a leading Nigerian independent energy company listed on both the Nigerian Exchange Limited and the London Stock Exchange, recorded $535 million in revenue in the nine months that ended 30 September 2021.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) stood at $266.4 million while cash realised from operations was $163.8 million, the company stated in its unaudited financial statements for the period.

Total expenditure for the period was $83.9 million. Cash at the bank was estimated at $273.9 million and the energy company posted $479.8 million as net debt. See other details below.

Operational highlights

  • YTD working-interest production of 47,280 boepd down 6.7% year on year largely as a result of the shut-in of the Forcados Oil Terminal (FOT) in August (Q3: 40,381 boepd)
  • Liquids production down 16.6% year on year at 27,804 bopd, recovering to 33kbopd liquids in October
  • Gas production up 13% to 113 MMscfd, despite FOT impact on associated gas
  • Completed two gas wells and three oil wells in the period, new Gbetiokun wells performing strongly

Financial highlights (9M 2021)

  • Revenue after adjusting for an underlift was $535 million
  • EBITDA of $266.4 million
  • Cash generated from operations $163.8 million
  • Cash at bank $273.9 million, net debt of $479.8 million
  • Total capital expenditure of $83.9 million
  • Interim dividend of 2.5 cents ($0.025)

Corporate updates

  • Name changed to Seplat Energy Plc to reflect new strategic vision outlined in July; new branding launched in October
  • Acquisition of Cardinal Drilling rigs for $36 million and cessation of legal proceedings by Access Bank Outlook for 2021
  • Expected production narrowed to 48-50 kboepd for full year, subject to market conditions
  • Amukpe-Escravos Pipeline (AEP) commissioning has commenced, oil flow expected in December 2021
  • Capex now expected to be $167 million for the full year
  • ANOH project remains on track for first gas in H1 2022

Commenting on the financial statements, Roger Brown, Chief Executive Officer, said: “Production has recovered strongly since the outage at Forcados Oil Terminal (FOT) and we have been averaging nearly 33kbopd liquids throughout October. Now that production has normalised, we expect production to be in the range 48-50 kboepd for the year, provided uptime on the Forcados Pipeline and FOT remains above the budgeted 80%. I’m pleased to report that our new wells at Gbetiokun are performing strongly, and we will soon commence drilling the exciting Sibiri prospect on OML40.

“We have taken the difficult, but practical decision to bring an end to the uncertainty of the Access Bank legal dispute regarding Cardinal Drilling Services, which completes the Board-mandated removal of Related Party Transactions.

“Although we maintain our previously stated position that legal action against the Company was wholly without merit, the risk of significant disruption to our operations and other opportunities from a long, drawn-out legal case brought us to a negotiated settlement with Access Bank. We have therefore acquired the four Cardinal rigs and we are now focusing on fast tracking their deployment in future drilling campaigns. `

“Our business model is robust, despite setbacks in the third quarter, thanks to the prudent and flexible approach we have taken to managing the business. With an increased focus on efficiency in our operations, improving uptime by opening up the Amukpe to Escravos Pipeline and driving further cost reduction across our portfolio, this will provide the bedrock allowing us to operate effectively in fluctuating commodity prices and generate returns for shareholders. I am optimistic that the coming year will be much stronger, with many of the problems of the past put behind us.

“After we set out our future strategy in July’s Capital Markets Day and launched our new corporate name of Seplat Energy plc, complete with its new branding, we are now focusing on building out and executing the energy transition that is right for Nigeria. A strong step forward will be when we bring on stream the ANOH project next year delivering more transition gas to an energy poor market, over reliant on expensive, high carbon-emitting electricity generated from small-scale diesel and PMS generators. Our three-pillar strategy is designed to ensure we balance carbon emission reduction with the essential social agenda for undeniably the most under-electrified, youngest and fastest growing population on earth.”

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Crude Oil

Crude Oil Drops on Wednesday as U.S. Oil Inventories Jump Unexpectedly

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Crude oil - Investors King

Global oil prices fell by 1 percent on Wednesday after data from the U.S. Energy Department showed that the United States oil inventories unexpectedly rose by 4.3 million barrels last week. More than the 1.9 million barrels predicted by experts.

The unexpected increase in United States inventories weighed on crude oil prices on Wednesday, erasing $1.31 or 1.5 percent from Brent crude oil after it rose to a seven-year high on Tuesday. While the U.S West Texas Intermediate (WTI) dipped by $1.09 or 1.3 percent to $83.56 a barrel.

Still, gasoline stocks declined by 2 million barrels across the United States, a situation likely to push pump prices even higher.

“The market continues to deplete Cushing crude oil inventories and that is impacting the Brent-WTI spread and ultimately we’re going to see crude oil diverted from the Permian up to Cushing rather than going to the Gulf Coast,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

However, the shaky COVID-19 recovery in most economies has led to doubts over the sustainability of rising oil prices.

“(Some) countries are falling into an autumn Covid-19 case spike,” said Louise Dickson, senior oil markets analyst at Rystad Energy, “which poses downside risk for oil demand growth in the very near-term and could provide a soft pressure on oil prices.”

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Crude Oil

Brent Crude Oil Extends Gain to $86.66 a Barrel Amid Tight Supply

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Brent crude oil - Investors King

Tight global oil supply pushed Brent crude oil, against which Nigeria oil is priced, to a multi-year high of $86.66 per barrel on Monday at 3:30 pm Nigerian time.

Oil price was lifted by rising fuel demand in the United States and tight global supply as economies recover from pandemic-induced slumps.

The global energy supply crunch continues to show its teeth, as oil prices extend their upward march this week, a result of traders pricing in the ongoing rise in fuel demand – which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy.

Goldman Sachs on the other hand is predicting a further increase in Brent crude oil to $90 a barrel, citing a strong rebound in global oil demand due to switching from gas to oil. This the bank estimated may contribute about 1 million barrels per day to global oil demand.

The investment bank said it expects oil demand to reach around 100 million barrels per day as consumption in Asia increases after the devastating effect of COVID-19.

While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast,” Goldman said in a research note dated Oct. 24.

Earlier this month, the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+ agreed to continue increasing oil supply by 400,000 bpd a month until April 2022 despite calls for an increase in global oil supplies.

The decision bolstered the price of Brent crude oil above $84 per barrel and expected to push the price even further to $90 a barrel. Low global oil supply amid rising demand for crude oil will continue to support oil prices in the near term.

Despite the recent power cuts and impacts to industrial activity in China, oil demand is likely instead supported by switching to diesel powered generators and diesel engines in LNG trucks, as well as by a ramp up in coal production,” Goldman Sachs stated.

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