Tullow Oil extends share price gains on OPEC+ supply cut hopes

Tullow Oil was among the top 10 gainers on the European Stoxx 600 index on Monday, with the stock closing 40% higher, driven by the promise of OPEC+ members meeting on Thursday to agree supply cuts in a bid to support oil prices.

The UK-based oil and gas company saw its shares begin to rebound last Friday after it told investors that it has $700 million of liquidity headroom and planned to continue to cut costs to cope with the fallout from the Covid-19 pandemic.

Tullow Oil said that it is targeting capital expenditure of around $300 million in 2020, down from its previous guidance of $350 million.

‘Savings have been identified primarily through the deferral of activities across the portfolio and through savings that can be realised by ongoing farm-down activities,’ the company said in a statement.

‘In Ghana, for example, savings will be made through the early termination of the Maersk Venturer rig and the deferral of some well activity, combined with the removal of any non-critical work that does not focus on safety and asset reliability.’

Despite shares rebounding more than 100% over the last two trading sessions however, Tullow Oil has seen its share price collapse over the last five months, with the stock falling 88% since mid-November, where it was trading at 205p.

Tullow Oil closed at 24p a share on Monday.

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Oil prices slump but remain above $30 benchmark

Oil prices slumped on Monday after OPEC+ talks were postponed until Thursday, though Brent crude managed to stay above the $30 benchmark.

OPEC+ will meet to discuss cutting oil production by about 10% of world supply, which equates to a reduction of around 10 million barrels of oil per day (bpd) in a global effort to support the market amid the economic fallout from Covid-19.

But even if OPEC+ can agree to a 10 million bpd cut in oil production, it is unlikely to be able to offset weakening demand, especially when forecasts predict a 23 million bpd supply overhang in April.

Tullow Oil: technical analysis

Tullow oil shares have started to rebound after an incredible selloff that has seen the stock lose 90% in five-months, according to Josh Mahony, senior market analyst at IG.

More recently, we have started to regain ground, with price rising into the 38.2% Fibonacci resistance level (31p). The wider downtrend remains intact, despite the rise through trendline resistance.

Given the long selloff we have seen, there is a good chance we will see further downside unless the stock manages to rise through the 70p mark.

Until then, there is a chance we will see the bears come back into play once again unless the OPEC+ actions manage to help drive crude prices to a point that the 70p level is broken for Tullow.

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