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How are Global Oil Stocks Trading after Saudi Arabia's Pledge to Raise Crude Oil Output?

Oct 22, 2018


  • Global oil stocks have been in the spotlight over the past few months as President Trump announced sanctions in May on Iran oil exports and the US administration pressures OPEC to increase crude oil output to meet global demand and ease rising crude oil prices. Many analysts have forecasted USD$100/bbl crude oil prices by CY2018’s end, however, those projections may change after Saudi Arabia pledged this morning to increase crude oil output to 11 billion barrels per day to offset losses from Iranian crude oil exports.
  • Brent Crude Oil prices have risen 32.85% YTD to USD$79.72/bbl and West Texas Intermediary (WTI) Oil prices have risen 22.87% YTD to USD$69.01/bbl. Both Brent Crude Oil and WTI Oil prices are flat on intraday trading.
  • When comparing the next-twelve-months price/earnings (NTM P/E) and last-twelve-months return on equity (LTM ROE) of the 34 largest global oil stocks, we observe that global oil stocks share little correlation between their NTM P/E valuation multiples and value creation (as measured by LTM ROE) -- this is illustrated by the lack of grouping in the scatterplot below which causes the nearly flat line of best fit.
  • Of the 34 global oil stocks analyzed, 5 standout as ‘cheap’, with strong LTM ROEs and low NTM P/Es relative to global oil stocks -- these 5 stocks include Gazprom (MISX: GAZP), Lukoil (MISX: LKOH), Petrobras (BOVESPA: PETR4), Rosneft Oil Company (LSE: ROSN), and China Shenhua Energy Company (SEHK: 1088).  
  • 4 of the 34 global oil stocks analyzed standout as ‘expensive’ with weak LTM ROEs relative to their NTM P/Es, including The Williams Companies (NYSE: WMB), Enbridge Inc. (TSX: ENB), Enterprise Products Partners LP (NYSE: EPD), and EOG Resources Inc. (NYSE: EOG) -- at first glance, it appears that investors are willing to pay a premium for US-traded oil stocks.  
  • Of the 5 global oil stocks that are considered ‘cheap’, 2 are ‘Top Buys’, including Gazprom (MISX: GAZP) and Lukoil (MISX: LKOH) -- both are ‘Top Buys’ in our European Large Cap Global Top Stock Ideas.
  • Of the 4 global oil stocks that are considered 'expensive', none are 'Top Shorts' in our Global Top Stock Ideas.
  • We also ran an affinity propagation algorithm for the universe of stocks (using 2 years worth of EOD prices) to see how global oil stocks cluster together
  • Very surprised to see stocks clustering together based on where they are listed, not industry or where they may have business exposure
  • This would suggest an ability to build a diversified portfolio of global oil stocks simply by allocating by regions of domicile


Source: Capital IQ

Cluster Analysis of 34 Largest Global Oil Stocks Using Affinity Propagation Algorithm



Cluster Companies
Cluster 1 Formosa Petrochemical Corporation
Cluster 2 China Shenhua Energy Company Limited, China Petroleum & Chemical Corporation, PetroChina Company Limited, CNOOC Limited
Cluster 3 Anadarko Petroleum Corporation, Canadian Natural Resources Limited, ConocoPhillips, Chevron Corporation, Ecopetrol S.A., EOG Resources, Inc., Occidental Petroleum Corporation, Petróleo Brasileiro S.A. - Petrobras, Suncor Energy Inc., Exxon Mobil Corporation
Cluster 4 Enbridge Inc, Enterprise Products Partners L.P., Kinder Morgan, Inc., TransCanada Corporation, The Williams Companies, Inc.
Cluster 5 Public Joint Stock Company Gazprom, PJSC LUKOIL , PAO NOVATEK, Public Joint Stock Company Rosneft Oil Company
Cluster 6 PTT Public Company Limited
Cluster 7 BP p.l.c. , Eni S.p.A., Equinor ASA, TOTAL S.A., Royal Dutch Shell plc
Cluster 8 Reliance Industries Limited 
Cluster 9 Marathon Petroleum Corporation, Phillips 66, Valero Energy Corporation


Source: Capital IQ