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Contrasting third quarter fortunes for oil majors ahead of OPEC summit
Thursday 03 Nov 2016 Author: Tom Sieber

Investors in BP (BP.) and Royal Dutch Shell (RDSB) will have little time to relax in the wake of their respective third quarter updates on 1 November. A looming OPEC meeting scheduled for
30 November could have a major impact on oil prices and oil equities.

OPEC is a cartel of oil producers. While it has tentatively agreed to curb production, there are considerable obstacles to sealing a final agreement. Failure could result in a renewed downturn for oil prices and trigger volatility in BP and Shell’s shares.

BP is on course to rebalance its organic cash flow in 2017 at $50 to $55 per barrel. The global benchmark Brent is currently just below that $50 mark.

A $10bn cash flow boost at Shell delivered by new projects is predicated on an average $60 per barrel price.

Shell posted underlying net income of $2.8bn in the third quarter, some 60% ahead of expectations. It also maintained the dividend.

Strictly speaking, BP beat earnings forecasts although this was down to a one-off UK tax credit.

A key concern was underlying production down 2% year-on-year to 2.11 million barrels per day with oil production down 7% year-on-year.

This implies spending cuts are beginning to have an impact on output. Both Shell and BP are continuing to scale back spending despite that risk. (TS)

BP remains one of our top picks at 474p but there is a risk of near-term volatility.

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