Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 06/12/22

Oil prices are expected to remain volatile, with the “Price Cap Coalition” adopting a price cap of $60/barrel on seaborne Russian crude oil 
              
Key Takeaways
 
S&P500 Energy stocks have overperformed year-to-date by a wide margin, up by +58% as global energy prices soared, with WTI oil prices averaging circa $95 per barrel due to geopolitical tensions and post-covid reopening, though running close to $80 currently, down from a peak of $124 in March. 
 
Upward revisions regarding profitability led prices higher, albeit the pass-through was incomplete. Consensus analysts’ estimates for 12-month forward S5ENRS EPS have drifted higher by 95% since early January to $70.  
 
As a result, S5ENRS P/E multiples have de-rated year-to-date by -14% to 9.6x from 11.1x, though energy companies are not cheaper, in our view. The equity price is equal to the expected future cash flows (i.e., dividends) quite far in the future. 
 
S5ENRS EPS growth is anticipated to turn negative in 2023 (-12%), as, inter alia, oil prices are expected to average $77 per barrel in 2023 based on NYMEX future contracts. Note that energy companies were cautious to increase oil production substantially in the course of 2022 due to ESG factors. 
 
On the (price) upside, the energy crisis may be far from being fully resolved, with oil supply remaining extremely tight. 
 
European Union’s (EU) ban on imports from Russia of seaborne crude oil and oil products came into force as of December 5th. US embargoes Russian crude oil imports as well. EU embargo on purchases of Russian refined productions will go into effect on February 5th, 2023. 
 
At the same time, the Price Cap Coalition (EU, G7 and Australia) agreed on a price cap of $60/barrel (on freight-on-board terms, i.e., not including the cost of insurance and shipping) on Russian seaborne crude oil. Effectively, the cap is aimed at buyers like China and India. 

Russia produces two major crude oil blends, with the aforementioned cap standing slightly above the current levels for the Urals blend and below the Eastern Siberia Pacific Ocean one. Urals represent circa ½ of total crude exports.

Effectively, insurance and shipping services from providers located in G7 countries (as well as in non-G7 EU members) and Australia, will be prohibited if the cost of Russian crude exceeds the cap. The vast majority of seaborne crude is currently affected, as according to G7 estimates, 95% of the global oil tanker fleet is insured by G7 countries providers.

Recall that Russia’s authorities have suspended the publication of detailed external trade statistics, including on oil exports, following the invasion of Ukraine. Prior to that, Russia exported roughly 5.0 million barrels per day of crude oil & condensates, ⅔ of which via seaports as suggested by independent estimates (3.1 million barrels per day). Note that oil products exports were an additional 2.85 million barrels per day.
 
Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 06/12/22
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