OPEC Plus extends deep oil production cuts

OPEC Plus agreed on Sunday to extend most of its deep oil output cuts for 2024 but to start phasing them out in 2025, as the group seeks to shore up the market amid tepid global demand growth, high interest rates and rising rival US production. OPEC Plus will hold its next meeting on December 01, 2024.

Oil prices trade near US$80 per barrel, below what many OPEC Plus members need to balance their budget. Worries over slow demand growth in top oil importer China have weighed on prices alongside rising oil stocks in developed economies.

The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC Plus, have made a series of deep output cuts since late 2022.

OPEC Plus members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand.

The cuts include 2 million bpd by all OPEC Plus members, the first round of voluntary cuts by nine members of 1.66 million bpd, and the second round of voluntary cuts by eight members of 2.2 million bpd

OPEC Plus extended the first round of cuts until the end of 2025 from the end of 2024, the group said in a statement.

It also agreed to extend the third round of voluntary cuts into the third quarter of 2024, OPEC Plus sources said, adding that more details were being worked out and would be announced on Sunday.

The countries which have made voluntary cuts in the second round are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates and Gabon. The same countries except Gabon participated in the third round.

The group also agreed to allocate the United Arab Emirates a higher production quota of 3.5 million bpd in 2025, up from the current level of 2.9 million.

OPEC Plus also postponed the deadline for an independent assessment of its members' production capacities to the end of November 2025 from June 2024. The figures will be used as guidance for 2026 reference production levels.

 

 

Pakistan: E&P companies post windfall profit

According to a report by Pakistan’s leading brokerage house, AKD Securities, the Exploration & Production (E&P) sector has reported phenomenal earnings for 1QFY23. The sector’s profit after tax was reported at PKR100.8 billion—the highest in its history. 

The sector’s earnings grew 55%YoY, with favorable macros driving earnings growth this quarter.  Net sales were reported at PKR226.6 billion for the quarter, higher by 13%QoQ and 54%YoY. This despite a drop in Oil/Gas production, but a weak PKR fueled topline growth. 

Exploration expenses in the final quarter of last year were at PKR26.6 billion, with the giant’s share dropping in PPL’s lap, with the Company reporting PKR11 billion in dry well costs. In 1QFY23, the exploration expenses of the sector were stated at PKR9.2 billion, lower by 65%QoQ, due to the absence of any substantial dry wells. 

On a company wise basis, the greatest sequential growth in profitability was posted by PPL, with net profit growing rising to PKR26.3 billion for the quarter. Trade Debts of OGDC and PPL were reported at PKR491 billion and PKR401 billion at the end of the quarter, respectively, increasing by PKR34 billion and PKR35 billion from the earlier quarter. 

The E&P sector provides investors with an exchange rate hedge, with the prospects of the sector having been muddied by mounting trade debts for the larger companies. Hence, within the sector, analysts like MARI and POL due to the relatively low exposure to the circular debt menace.

Pakistan stock market coming out of Brexit syndrome

As the fears of Brexit started easing benchmark of Pakistan Stock Exchange, PSX‐100 Index managed to close at 37,784 for the week ended on Thursday. Friday was a holiday on account of last Friday of Holy month of Ramadan.

Foreign selling also continued, though with much lesser magnitude reported at US$3.61 million during the week as compared to US$20.56 million a week ago. Ramadan factor eclipsed MSCI EM upgrade as the benchmark index barely crossed pre‐MSCI level of 37,518.

Average daily traded volumes fell by 8%WoW to 143 million shares as compared 155 million share due to trading curtailed to four day. Leaders during the week under review included FATIMA, HCAR, DAWH, AICL and ABL, while laggards included MTL, NML, AGTL, FFC and FFBL.

Key developments during the week included: 1) Ogra recommending an upward revision in per liter prices of HSD by Rs3.75 to Rs79.27 and motor gasoline petrol by Rs1.93 to Rs66.20, despite crude oil prices easing in the international markets, 2) ADB approving a US$600 million loan to help Pakistan roll out major structural reforms to improve the performance and financial sustainability of its PSEs, 3) the book‐building process for the IPO of TPL Properties has raised Rs696.8 million at the strike price of Rs12.50/share, 4) LSM posting a growth of 3.92%YoY in the 10MFY16 reflecting a partial revival in the industrial output, and 5) KEL submitting a Multi‐Year Tariff petition with Nepra seeking an increase in tariff by Rs0.66/unit in the name of O&M component for ten years commencing from July 1, 2016 to June 30, 2026 and has also sought a change in claw‐back formula threshold.

Though Brexit fears eased in the outgoing week, volatility is expected to remain relatively higher due to unfolding developments in the process. Nonetheless, re‐rating associated with the MSCI EM upgrade will likely provide impetus to the Index. Additionally, the end of Ramadan will mark return of volumes out of dormancy to normal levels. Keeping in view marker dynamics analysts recommend taking new positions in main blue chips that will likely make way into MSCI EM list that OGDC, HBL, MCB, UBL, LUCK, ENGRO, FFC, HUBC and PSO.

Latest banking sector data released by State Bank of Pakistan for May'16 indicates that banks' balance sheet continued to grow at strong levels, up 19%YoY, to Rs12.1 trillion. While private sector credit growth has not been substantial on account of bank's continued preference for risk‐free government securities (banks' lending to government grew by more than 29%YoY in May'16, posting growth of 8.2%YoY in May'16 alone. However, consumer financing grew by 9.3%YoY to 7.7% of the private sector loans as banks look to re‐focus on high margin auto finance and personal loans in the current lower inflationary environment. Spreads are likely to bottom out on possible monetary tightening in CY17. Analysts retain our liking for banks that offer: 1) superior ROE profile, 2) keen focus on growing low cost current accounts, 3) diversified income streams and 4) ability and reach to capture CPEC related investments.