Trump’s Iran pull-out is very good news for these ASX oil juniors
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Donald Trump’s move to pull the US out of the Iran nuclear deal means higher oil prices and more investment in long-neglected oil juniors, analysts say.
Iran is the world’s fifth biggest oil producer — and its output is expected to fall dramatically as US sanctions hit.
Oil prices rallied to multi-year highs on Wednesday, a day after President Donald Trump announced plans to withdraw the US from the Iran nuclear deal.
On Thursday morning West Texas Intermediate rose 2.8 per cent to $US71.17 a barrel — the highest level since November 2014.Brent crude in Europe, the international benchmark, also hit a three-year high, up 2.8 per cent to $US77.20 a barrel.
If oil can stay up around this point, that’s good news for ASX oil juniors because most companies are profitable at those prices, says Jason Teh from Vertium Asset Management.
>> Scroll down for a table showing how ASX-listed oil juniors have performed so far this year
Mr Teh did some crystal ball gazing for Stockhead — oil prices are notoriously difficult to predict — and said if future US sanctions on Iran were more onerous than everyone thinks they may be, oil prices could go up further.
If Mr Trump’s bark is worse than his bite and sanctions turn out to be fairly weak, oil prices may fall.
One million barrels
It all depends on how much markets have priced in the risk that the extra 1 million barrels of oil Iran has produced since sanctions were lifted in 2016 will be removed from global markets.
Australian resources veteran Stephen Mitchell says the impact on global markets could be even stronger: Iranian oil production could go from 4 million barrels a day to less than 400,000.
“Such a reduction would put some upward pressure on oil prices to the benefit of Australian producers, though I think some of this is already factored into the current oil price,” he told Stockhead.
“The issue is more likely to impact oil prices on the upside which may make investors more likely to invest in the sector than withdraw.”
In Australia, it’s the long oil price rise since July last year that is kicking off a resurgence in the sector, not the vagaries of international politics.
Triangle Energy (ASX:TEG) managing director Rob Towner says people are becoming interested in oil production and exploration again and life is about to become easier for long-maligned explorers.
In late March he was still reasonably pessimistic about the prospects of Australian explorers, but extremely positive about companies like Buru Energy (ASX:BRU) and Triangle which have producing operations.
His turn around has come because “people are now calling me”, thanks to positive momentum generated by oil price rises and the Northern Territory’s removal of the moratorium on fracking, a method of extracting gas from small cracks in rocks rather than big reservoirs.
Make it rain
Money is starting to flow back into ASX oil juniors. Among the larger recent capital raises, totalling $145.3 million, were:
Empire Energy (ASX:EEG) raised $1.875 million earlier this year and its shares went from under 2c to almost 4c on the day the Northern Territory removed the fracking moratorium.
Australis Oil & Gas (ASX:ATS) raised $39 million in March.
Alaska-focused 88Energy (ASX:88E) raised $17 million last week.
Elk Petroleum (ASX:ELK) raised $13.5 million this week.
And Sundance Energy (ASX:SEA), a once beloved US-focused explorer and producer whose shares haven’t recovered since a collapse in 2014, raised $73.9 million from the market in March and April.
“Even I was blown away,” Mr Towner said. “If there’s development opportunities, there’s money there.”
Here is a table showing how ASX-listed oil juniors have performed so far this year (Jan – May). Swipe or scroll for more data:
|ASX Code||Company||Price change 2018 (Jan-May)||Price May 9 (intraday)||Market Cap||Regional focus|
|EEG||EMPIRE ENERGY||2.36363636364||0.037||45.5M||Aust US|
|ATS||AUSTRALIS OIL &||0.695652173913||0.39||357.5M||US|
|TMK||TAMASKA OIL & GA||0||0.003||5.9M||US|
|FDM||FREEDOM OIL AND||0||0.3||282.2M||US|
|SSN||SAMSON OIL & GAS||0||0.002||4.9M||US|
|NEW||NEW ENERGY SOLAR (listed Dec 2017)||-0.0442176870748||1.405||468.5M||Aust|
|CUE||CUE ENERGY RES||-0.0555555555556||0.068||47.5M||Aust Asia|
|EOR||ENHANCED OIL & G||-0.111111111111||0.008||7.9M||Asia|
|AVD||ANTILLES OIL AND||-0.130434782609||0.02||3.3M||US|
|BUY||BOUNTY OIL & GAS||-0.142857142857||0.006||5.7M||Aust|
|ABL||ABILENE OIL AND||-0.3||0.007||2.8M||US|