Will Brent crude dip below US$20 a barrel in the aftermath of the Saudi-Russia spat that has seen cut-price oil flood the market?
According to the American ‘shop’ Stifel, this is very much a possibility.
“Regrettably, with no adults in the room anymore, we think lower than US$20 Brent in the short term is possible and that we need to face a scenario where Brent oil prices could average US$30 or below this year and US$40-50 a barrel next year,” it said.
Over the weekend Saudi-directed OPEC turned on the spigots in a stand-off with Moscow, which was unwilling to cut its output.
In what is turning out to be a giant game of chess, at least one news outlet reckons Vladimir Putin’s walk-away strategy is more aimed at the US, the world’s largest oil producer and its shale industry, than it is the Middle East-focused oil cartel.
Picking through the entrails, Goldman Sachs reckons Big Oil can withstand two years of oil prices below US$40 a barrel before the pips start to squeak.
UBS, meanwhile, reckons the majors will “work aggressively” to protect their dividend payments, which, inevitably, will mean a brake on investment.
In the same note, it said the process of “finding the oversold bargains is likely some way off”, with plenty more bloodletting expected.
“Moreover, the simple trade of switching from upstream to downstream is not so compelling with demand so weak,” the Swiss bank told clients.
“Ultimately, at this point balance sheet is the key.
“Lower cash neutrality is also helpful although we expect all companies to work aggressively on this figure – in order to protect the dividend.”
The most conservatively managed business appears is Chevron (NYSE:CVX), which had pledged to return a whopping US$80bn back to investors.
You wonder whether the American firm may sit tight on the more ambitious aspects of the capital return.