Oil company shares dip on US reserves release

Crude oil prices fell on Thursday after US President Joe Biden gave the go ahead for “unprecedented” amounts of emergency US oil reserves to be released. Biden gave the order for 180 million barrels to be released from the US Strategic Petroleum Reserve. It is to pump out as much as 1 million barrels a day for six months.

“This is a moment of consequence and peril for the world and pain at the pump for American families,” said President Biden. “The bottom line is, if we want lower gas prices, we need to have more oil supply right now.”

He previously tapped the reserves for 30 million barrels in November.

Brent crude prices dipped by 5% to $104 a barrel on Thursday from previous levels of $113 and further to $103 on Friday.

Oil majors’ shares dip after strong run

Shares in oil majors BP and Shell both softened, with shares in BP down 6% this week and Shell down 5%. However, the shares have since regained ground.

"This is a market where every barrel counts and (the SPR release) is a significant volume of oil to be put on the market for an extended period of time," said John Kilduff, a partner at Again Capital LLC.

Shares in BP are up 30% to 377p in the last year boosted by bumper results and the soaring oil price following the Russian invasion of the Ukraine and restriction of supply.

Recent results were impressive after the substantial losses in 2020. BP made a $7.6bn pre-tax profit after losing $20.6bn the previous year. The company also unveiled a chunky share buyback programme for investors worth $4bn a year.

Likewise, Shell recently announced a $8.5bn share buyback scheme. Its shares have jumped by 50% in the past 12 months to 2113p. Earlier this month it posted fourth-quarter profits of $4.6bn – its highest since 2014.

Flies in the ointment for BP and Shell

However, risks remain for the UK oil majors. The exit from Russia and sale of its 19.75% stake in Rosneft are major issues for BP. The company is struggling to find a buyer for Rosneft and previously produced a million barrels a day from Russia. Industry experts also fear oil and energy giants could be a soft target for government windfall taxes, as my colleague Charles Archer notes.

What’s more, over the longer term, the transition from fossil fuels to greener forms of energy represents a major challenge for the oil majors.

However, for now, oil and energy prices look set to continue to be high for the foreseeable future.

"We will see no rebalancing [in oil prices] before the war in Ukraine is over," said Frank Schallenberger, head of commodity research at LBBW told Reuters.

Plus, BP shares are some way off their 2019 highs of 563p, while Shell’s are trading below their 2019 high of 2594p. As such, any share price weakness among the oil and gas majors could be a buying opportunity.