Oil price weakness a major headache for BHP Billiton

Follow this link if this email is not displaying correctly DAILY BULLETIN Thursday 3 November 2016 Dear Gutenberg, Commodities are always big news, but oil has largely been out of the headlines since OPEC announced plans to cut output a few weeks ago. While this should eventually raise prices and provide some relief to various struggling petrostate government budgets, the actual details of the arrangement have yet to be finalised and it is unclear exactly where production will be reduced. Until this is clear, the status quo will prevail - with all the attendant effects on oil and gas companies that we have seen over the last two years. Below, Robert Stephens takes a look at how this will affect BHP Billiton and we recommend you read the piece in full. Oil price weakness a major headache for BHP Billiton by Robert Stephens | Commodities | 4 mins. to read Since BHP Billiton (LON:BLT) relies on its oil division for 29.6% of its EBITDA, the uncertain outlook for oil leaves me negative on its medium-term future. Hopes were raised regarding the oil price last month when OPEC declared that it had struck a deal to freeze output. Brent rallied in the aftermath and many investors became increasingly bullish about the medium-term prospects for black gold. However, the deal has not yet been finalised and even if it is, sluggish demand for oil could keep its price at sub-$50 per barrel in 2017. OPEC's agreement to cut oil production from 33.7 million barrels of oil per day (bopd) in September to between 32.5 and 33 million bopd is not a done deal. It will meet again this month to decide which members will cut production and by how much. This, then, is where the uncertainty begins, since a number of OPEC members are likely to insist that their production stays as it is, or even rises in the coming months. For example, Iraq is likely to ask for exclusion from the list of countries which will cut production since it needs cash from the sale of oil to fight IS. However, this would mean other OPEC members bearing the brunt of cuts, since Iraq is the cartel's second biggest oil producer. Similarly, Iran has stated repeatedly that it is seeking to raise production to pre-sanction levels. If it is allowed to do so, it will mean other OPEC members will be forced to cut production even further. 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