Where will CNOOC go under high oil prices?

$CNOOC (00883)$ $Occidental Petroleum (OXY)$ $China Shenhua (01088)$ On June 2, 2022, OPEC+ agreed to increase production by 648,000 barrels per day in both July and August, far exceeding the current increase of 43.2 10,000 barrels per day, which means that OPEC+ has expanded its oil supply increase by about 50%, exceeding market expectations. However, after the announcement of OPEC+ production increase, oil prices rose instead of falling. Brent crude oil jumped from a low of $112.51/barrel on the day to $118.45/barrel within a few hours, an increase of as much as 5%. As of the early morning of the 4th Beijing time, the main contracts of WTI crude oil futures and Brent crude oil futures both exceeded 120 US dollars per barrel, hitting a new high since March this year. This marks an upward shift in the center of gravity for oil prices each month in the second quarter. I believe that with the fermentation of sanctions and the growth of demand, oil prices may gradually increase their focus until the Fed completes the rate hike in September.

EU announces sixth round of sanctions against Russia

The European Commission announced on the 3rd the sixth round of sanctions against Russia, including a partial oil embargo, sanctions on Russian tankers, banks and media. The European Commission issued a communiqué on the same day that the sanctions will take effect immediately and will gradually reduce Russian oil imports. The EU will stop buying Russian seaborne crude oil, which accounts for two-thirds of EU imports of Russian crude, within six months, and stop buying Russian oil products within eight months. By the end of 2022, EU oil imports from Russia will be cut by 90%.

According to the previous agreement reached by EU leaders, if the EU embargoes oil on Russia, Russia’s exports to the EU will be reduced by 3 million barrels per day in the second half of this year. According to forecasts, Saudi Arabia and the United Arab Emirates are the only two OPEC+ countries with remaining capacity to increase production. According to the new benchmark in May 2022, Saudi Arabia and the United Arab Emirates will increase production by 114,000 barrels per day and 35,000 barrels per day in the next four months. After the completion, the remaining production capacity of the two countries will be 480,000 barrels per day and 1.01 million barrels per day respectively. If Saudi Arabia and the United Arab Emirates plan to increase production considering the impact of sanctions on Russia, the maximum output that the two countries can release in the second half of the year is 2.09 million. barrels/day. However, it can be seen that Saudi Arabia and the United Arab Emirates do not dare to rashly increase production alone from a long-term perspective, because both short-term and long-term interests will be damaged, because oil-producing countries have recently enjoyed high oil prices. In addition, considering that India’s imports of Russian oil in June increased by 130,000 barrels per day compared with May, and May increased by 560,000 barrels per day compared with April, the increase in imports has slowed down. It is believed that the additional production increase by OPEC in the second half of this year and the increase in Indian imports are also likely to be unable to make up for the decline in Russian crude oil exports .

Firmly optimistic about the historic allocation opportunity of crude oil

From the perspective of demand, entering June, the summer travel peak in Europe and the United States has arrived, superimposed on the recovery of crude oil demand in China, and the peak season of oil demand is coming. According to the IEA’s May report, global crude oil demand in the second half of this year is expected to increase by 2 million barrels per hour compared with the first half of 2022. sky. If the EU does not pass the sanctions plan against Russia and OPEC+ still increases production as originally planned, OPEC+ will increase production by 1.1 million barrels per day in the second half of the year. According to the EIA May report, the United States is expected to increase production by 720,000 barrels per day in 2022. The growth rate is slowing, and the increase in production is limited. The global crude oil supply and demand pattern may remain tight.

Personally, I believe that capital expenditure is the main reason for limiting crude oil production, whether it is traditional oil and gas resources or US shale oil. Considering the lack of long-term capital expenditure on global crude oil, the elasticity of global crude oil supply will decline. In the transition between new and old energy sources, the demand for crude oil is still growing, and the world will continue to face the problem of crude oil shortage for many years. International oil prices will usher in an upward turning point in 2022. Oil prices will remain high for a long time, and energy resources are expected to be in a booming cycle in the next 3-5 years. We will continue to be optimistic about this round of energy inflation, and continue to be optimistic about the historic allocation opportunities of crude oil and other energy resources under the production capacity cycle . In the case of global capital expenditure decline, CNOOC has maintained the momentum of capital expansion, and also provided an effective guarantee for production growth in the next few years. Oil production is targeted at 730 million barrels by 2025. I predict that the target should be exceeded, which is expected to be 750 million barrels of equivalent. Compared with 2021, it has increased by 30%, with an average annual growth rate of 7%.

Oil price and performance forecast for 2022-2025

The peak of crude oil demand is expected to be around 2035 at the earliest, because the demand for plastics has doubled in the past 10 years, and the raw materials of plastics are petroleum products. And the peak of gasoline car ownership has yet to come. Perhaps China will be the fastest coming big country, because China’s electric vehicles are unique in the world. It is hard to say whether China can reach its peak in 2030, let alone other countries?

Based on your own inferences,

Brent’s average oil price in 2022 is $105 per barrel, with a profit of 150 billion

Brent’s average oil price in 2023 is $110/barrel, with a profit of 170 billion

Brent’s average oil price in 2024 is $90/barrel, with a profit of 140 billion

Brent’s average oil price is $80/barrel in 2025, with a profit of 135 billion

Some people may have doubts about the oil price forecast in 2023. In fact, many times, people think that oil prices will fall soon, due to the increase in US dollar interest rates, and high oil prices will inhibit consumption. But maybe everyone has not considered the tearing and confrontation between geopolitics and the world. And high oil prices are good for good nations. The United States is now importing discounted Russian oil and exporting high-priced natural gas and oil. Therefore, according to the current outlook of major oil companies, at present, increasing capital expenditure is not in the plan, but is keen on repurchase and dividends. This can more effectively support oil prices. In fact, you can see that after the skyrocketing sea freight rate, the foreign countries are now liberalized and the demand has dropped. Do you see the freight rate returning to the original level? No, the shipowner would rather cut the ship and maintain the freight rate. This is also a story that will follow in the oil industry.

In the next four years, CNOOC’s profit will be about 600 billion yuan, and the dividend should be calculated at 45%, which should reach 270 billion yuan, or about 5.7 yuan per share. We convert the exchange rate at 0.85, which is about 6.7 Hong Kong dollars, plus the dividend in 2021? About 7.9 Hong Kong dollars. According to the current price of 12 yuan, there is about a 65% dividend. This is worth having, 4 years. Moreover, the net worth of CNOOC will be greatly increased by then. It should be 16 RMB, about 18.8 Hong Kong dollars. Even if we calculate it according to 80%, it will still be 15 Hong Kong dollars. Therefore, in the past 4 years, not counting the dividend input, there is also nearly 100% of the income.

Many people may have objections to my inferences, but I don’t want to say more. Let time bear witness. I believe that CNOOC can give me financial freedom. Let’s go and cherish, and have fun in time. @ guanwocai @superludinggong @ HIS1963 @金山大國家@中海油-teacher Ding @waiting for ants to become elephants @ericwarndingning

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