With the price of oil now at prices last seen in July 2009, oil production companies are losing whilst airlines and car manufacturers gain.
BP has announced job cuts of 40,000 to redress the imbalance the firm is feeling from profit margins attacked by low oil prices. However, at the same time, higher consumption within the growing global economy may save the likes of BP, ExxonMobil and Shell as consumers have more to spend on gas-guzzling cars and can afford the high levels of fuel needed to run them. In the US, consumer spending increased in the third quarter of 2014, this added to the positive economic outlook for the States as the Fed reported last week, "Some contacts viewed lower gasoline prices as a contributing factor to higher consumer spending."
Another factor that is affecting the oil production companies is the highs recorded on the indices, with all exchanges demonstrating an overall increase in company shares - BP and ExxonMobil are surfing on the upside. This explains why the oil chart is not being reflected automatically on oil production companies’ share prices.
Keeping investors interested
BP shares are still the same value as 2010, but the dividends they pay are still keeping investors interested. Royal Dutch Shell plc [SHELL] paid their latest interim dividend in respect of the third quarter of 2014 of US$0.47 per A ordinary share (“A Share”) and B ordinary share (“B Share”), an increase of US$0.02 on the equivalent US dollar dividend for the same quarter last year. ExxonMobil are also offering a cash dividend of 69 cents per share on the Common Stock.
BP’s job cuts follow Shell’s similar announcement in August 2014 of cutting 250 jobs from its onshore operations in Aberdeen Scotland, and though smaller in number, the cost-cutting exercise is an obvious result of low oil prices and the impact from the strength of the dollar on non-US operations.
Norwegian consultancy Rystad Energy have also reported that in 2015 oil production companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil. The projects in question are most likely to be offshore wells that bear higher production costs – the North Sea and the Norwegian Sea being the prime targets, alongside Shell's liquefied natural gas (LNG) project in Canada's British Columbia, and BP’s $20 billion development of Mad Dog Phase 2 deep water project in the Gulf of Mexico, which is already on hold.
On the up side, companies such as Lufthansa and Boeing are investing more and seeing their shares rise on the back of lower fuel prices. According to the International Air Transport Association, jet fuel constitutes around 30% of an airline’s cost, with the global airline industry saving $7 billion on fuel costs compared to 2013.
After a heavy drop in June this year that continued until October, Lufthansa are now seeing their shares rise from 11.380 to latest highs of 14.836. Boeing has followed the same path since October, climbing from 116.67 to 131.92 today.
Car manufacturers are reaping the rewards of high consumer confidence, especially in the US, as economic growth rises and larger cars start to replace household vehicles. General Motors has risen from October rates of 28.76 to today’s price of 33.83. CNN reports that the Stock Price Forecast for GM shares have a median target of 41.00, with a high estimate of 53.00 and a low estimate of 27.00. The median estimate represents a +23.01% increase from the last price of 33.33.
MT4 chart: Oil
MT4 chart: BP
MT4 chart: Boeing
MT4 chart: GM
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