Fate of energy companies' $220-billion gain is in OPEC's hands

By Rakteem Katakey on 11/29/2017

LONDON (Bloomberg) -- The world’s biggest oil companies have added $220 billion in value since the middle of this year as crude prices rallied to the highest in more than two years. They will be hoping OPEC doesn’t crash the party.

Producers, including ExxonMobil Corp. and Royal Dutch Shell Plc, have shown this year that deep cost cuts have put them in a position to prosper, even with crude at $50/bbl. Yet, the oil price has been the primary driver of their shares. As OPEC’s output curbs pushed benchmark Brent above $60/bbl, the 88-member MSCI World Energy Sector index increased 8% in the second half of this year, largely reversing an 11% drop in the preceding six months.

That’s a rare bonanza for companies that had their value, profit and balance sheets severely eroded since oil’s crash started in the middle of 2014. As they emerge from days of austerity, doubts are surfacing about how much longer the Organization of Petroleum Exporting Countries and its allies will prolong production cuts. OPEC ministers preparing to meet in Vienna on Thursday are still awaiting Russia’s formal assent to an extension beyond March.  

That has eased oil’s gains this week. The group has various options, including prolonging the deal by six, nine and 12 months, Iraq’s Oil Minister Jabbar Al-Luaibi said Tuesday.

OPEC and its partners have had some success with their agreement though there’s still work left to do. Global inventories relative to the five-year average have more than halved since January but the surplus still stands at 140 MMbbl, OPEC Secretary-General Mohammad Barkindo said Monday.

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