Energy stocks surge as OPEC+ denies oil output increase discussions

London-listed energy stocks have rallied strongly after OPEC+ members confirmed they are not currently talking about increasing oil production.

BP, Shell and the FTSE 100’s Harbor Energy were among the index’s biggest fallers on Monday as the price of crude fell after reports that Saudi Arabia and other producers were in talks to approve an increase in production.

But ministers from Saudi Arabia, the United Arab Emirates and Kuwait have now separately denied these reports, leading to a 0.4 percent rise in the WTI crude oil price to $80.40 a barrel, while the UK energy sector increased by 3.5 percent.

Shellme and Harbor Energy were among the best risers on the FTSE 100, adding 4 and 7.1 percent respectively by midday.

Meanwhile on the FTSE 250, Tullow Oil Stocks added 4 percent and energy service provider Wood Group rose 3 percent.

BP rose 5.8 percent as it was further boosted by bullish analysis from Citigroup, which upgraded its recommendation from “hold” to “buy.”

Energy stocks have performed strongly this year, buoyed by skyrocketing energy prices in the wake of Russia’s invasion of Ukraine, with BP and Shell gaining 38 and 37.8 percent respectively since early 2022.

But there are concerns among shareholders that this run could end abruptly if the price of oil falls sharply, which could also exacerbate the financial impact of windfalls on these companies.

Shell chairman David Brunch warned on Monday that the energy giant will review its £25bn case-by-case UK investment plans after the government raised windfall tax for North Sea oil and gas producers from 25 to 35 per cent.

He said some producers – which are largely focused on the North Sea, unlike Shell, which has a much larger operation around the world – would be more exposed than others.

Head of Investment at Interactive Investor Victoria Scholar said: ‘The outlook for oil prices is unclear and this bumper period may not last.

While Shell can afford the increased windfall tax now, oil prices could fall significantly between now and 2028, when the end of the tax is extended to. Remember back in 2020, oil demand collapsed and prices plummeted, putting pressure on energy companies.

“If there is another demand shock, Shell’s profits could fall with it, which may be why the company may not want to be tied down to billions of pounds in long-term investment projects, especially at a time when the world is trying to slide away. of its dependence on fossil fuels.’

Meanwhile, oil prices are trading higher, also helping to lift BP and Shell to the top of the FTSE 100 after Saudi Arabia denied a report that OPEC+ was considering an output increase at its next meeting, sending oil prices plummeting on Monday.

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, added: “Shell’s warning that it is now reviewing its North Sea projects and renewable energy plans due to the extended windfall tax will make Chancellor Jeremy Hunt uneasy making… especially given concerns that the fall statement did not do enough to fuel growth through investment.

Warnings from BP earlier this year about the possibility that it could drop some spending commitments have not materialized, even though the windfall tax was then only expected to remain in place until 2025. With the levy extended and increased, it’s little surprise that new reviews are underway.

However, Shell’s outgoing CEO Ben van Beurden did indicate that the burden of helping the poorest in society should fall on the industry and as Shell’s new CEO Wael Sawan comes from the division renewable energy, any cuts, particularly in cleaner, greener projects, are likely to still be minimal.

“The risk of oil and gas companies falling into the ethical bin if such projects are delayed will also be on the mind, especially given the new stark warnings at COP 27.”