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Oil prices rally as Trump-Putin call raises truce hopes Shell secures £10bn loan facility as it warns over £650m hit from oil price fall
(about 4 hours later)
Producers including Shell affected by price war between Saudi Arabia and Russia Oil producer bolsters balance sheet amid price war between Saudi Arabia and Russia
Oil prices have rallied after a call between Donald Trump and Vladimir Putin raised hopes that tensions between Moscow and Saudi Arabia may start to ease. Royal Dutch Shell has secured a $12bn (£9.7bn) loan facility to protect its shareholder payouts against an oil price crisis and the “significant uncertainty” of the coronavirus pandemic.
Brent crude prices rose as much as 3.5% to $23.55 overnight, after hitting an 18-year low of less than $23 per barrel on Monday. The global benchmark for oil prices lost some of its gains later on Tuesday, but was still trading just above the $23 level at $23.01, a rise of 1.1%. Shell set out the plan to bolster its balance sheet after becoming the first major oil company to update investors on the toll of tumbling oil prices on its business. It warned that the sudden oil market collapse could wipe up to $800m from its finances for the first quarter through a post-tax impairment charge.
The Oil giant Shell said on Tuesday it would take a $400m-$800m (£325m-£650m) charge in the first quarter as a result of plunging crude prices. The company is already planning to slash $9bn (£7.2bn) from its spending plans to weather the collapse in prices amid the coronavirus pandemic. The global oil price fell to 18-year lows this week as the economic contagion of the Covid-19 virus continues to weaken demand for energy and a price war between Saudi Arabia and Russia threatens to flood the market with more oil than the world can use.
The plunge in oil prices has been sparked by a bitter price war between Saudi Arabia and Russia. Both producers are preparing to pump record amounts of oil to gain a greater share of the global market, despite a plunge in demand for energy during the coronavirus crisis. It has triggered the sharpest drop in oil prices since 1991. Oil prices traded higher from lows of $23 a barrel following a call between Donald Trump and Vladimir Putin which raised hopes of a truce between Moscow and Riyadh before they each raise oil production to record highs next month.
While Saudi Arabia denied it was in talks with Russia over a potential truce on Monday, news of the US president’s call to his Russian counterpart sparked a degree of hope among investors that global leaders may be ready to compromise in order to support the oil market. The price of Brent crude rose to $23.55 a barrel overnight and had climbed to around $25 by Tuesday afternoon, from $65 a barrel in the first week of this year before the coronavirus began slashing the global energy demand forecasts for 2020.
The Kremlin said in a statement that the two leaders discussed the coronavirus pandemic and “exchanged views on the current state of the global oil market and agreed that Russian and American energy ministers should hold consultations on this topic”. “We have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,” Shell told investors. “Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets.”
Analysts suggest Trump could be willing to cut US shale production or ease sanctions on Russian oil companies, such as Rosneft, in order to lure Moscow back into negotiations with the Opec oil cartel. The company is already planning to slash $9bn from its spending plans to weather the collapse in prices amid the coronavirus pandemic. On average oil companies are cutting their spending plans by around a quarter to help weather the crisis.
Elsa Lignos, a senior strategist at RBC Europe, said: “Yesterday Trump called Putin in what our commodities team says ‘may prove to be an important turning point in the standoff between Moscow and Riyadh’. They argue a rollback of some US energy sanctions could be the catalyst for getting Russia back to the Opec+ bargaining table. Helima Croft, the head of global commodities at RBC Capital, said a US intervention in the Saudi-Russo oil price war “may prove to be an important turning point in the standoff between Moscow and Riyadh”.
“A key question for the White House is whether it is worth continuing with the sanctions if they prevent a production agreement which could help save the US shale industry.” “A rollback of some US energy sanctions could be the catalyst for getting Russia back to the OPEC+ bargaining table,” she said.
But analysts at Rystad Energy, a Norwegian consultancy, warned that Russia and Saudi Arabia’s production increase ambitions “are a drop in the ocean compared to the losses of global demand” due to the coronavirus crisis.
“Only a global production curtailment deal could help speed up the recovery in the market, once the calamities of the Covid-19 quarantine measures on oil demand become more clear,” the analysts said. “Unprecedented times call for unprecedented actions.”