Premier Oil shares set to struggle despite support for $325m cap hike

• Premier Oil shares under pressure despite support for £325 million capital raise
• IEA slashes forecast for global oil demand for H2 2020
• Brent crude rebounds after slump, but demand concerns weigh on oil prices

Premier Oil shares are likely to struggle despite the company receiving support for a $325 million capital raise, according to a recent report by Reuters.

The capital hike will be linked to debt restructuring, with the company holding around $1.9 billion of net debt on its balance sheet.

The oil and gas company reportedly needs 75% of its creditors to agree to its restructuring plans for the book building process of its planned capital increase to kick-off.

‘We have taken decisive action to safeguard our people and our assets,’ Premier Oil CEO Tony Durrant said in the company’s half-year results in August. ‘We have reduced our expenditure which, together with our hedging programme and the continued underlying performance of our assets, resulted in us generating free cash flow for the period, despite the collapse in commodity prices.’

‘The BP Acquisitions and our proposed long-term refinancing will position Premier to benefit from materially rising near-term production, additional free cash flow generation and a strengthening balance sheet, against a backdrop of a recovering oil price,’ he added.

Premier Oil closed 1.3% lower on Thursday at 19p per share, with the stock down 80% year-to-date.

IEA cuts global oil demand forecast for H2 2020

The International Energy Agency (IEA) slashed its global oil demand forecast in the second half of 2020, with the organisation warning that energy demand is struggling to pick up due to the coronavirus pandemic.

The IEA lowered its forecast for oil demand growth in H2 2020 by 400,000 barrels a day, meaning that global demand is running at 8.4 million barrels a day below that of last year.

‘With the on-coming northern hemisphere winter, we will enter uncharted territory regarding the virulence of Covid-19,’ the IEA said.

‘In last month's report, we said that the market was in a state of ‘delicate re-balancing’. One month later, the outlook appears even more fragile,’ it added.

Brent crude: technical analysis

Brent crude has been clawing back lost ground, with the rise through $41.40 completing a double bottom formation, according to Josh Mahony, senior market analyst at IG.

‘That seems to have paved the way for a strong move higher, with an overnight pullback already being eroded as price moves higher,’ he said.

‘Watch for a break through the $42.78 level to signal another leg higher coming into play, with a bearish phase only emerging if we see the $41.86 level broken.

Brent crude is trading 2.75% higher to $43.38 at the time of publication, while the US West Texas Intermediate (WTI) is up 2.14% to $41.02 a barrel.

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