May 9, 2017

Pegler’s market report – 09.05.17: A volatile period for oil

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (09.05.17) Business on page 21 under the title Pegler’s Market Report:

A volatile period for oil

There appears no firm fundamental reason for the weakness of the oil price of late, however it certainly has had a volatile period over recent days. Analysts point to an over-supply: US oil production has risen by 840,000 barrels a day since the October low point and so far, is not showing any signs of slowing. Last week it reached 9.3 million barrels a day, its highest since August 2015. Meanwhile, US car sales dropped in April for a fourth month in a row raising concerns about gasoline demand into and during the peak demand season. Libya also resumed production from its largest field and China continues to tighten its monetary policy as the impact of the 2016 infrastructure spending surge begins to fade.

Generally last week’s market activity ended on a slightly happier note as US job growth rebounded sharply in April, beating expectations. Some European markets also found new highs ahead of the French Presidential elections.

Shares in publisher Pearson surged strongly after it announced plans to its cost base by £300m. The company unveiled a new tranche of job cuts and office closures as chief executive John Fallon prepared to face angry shareholders at the education publisher’s AGM. Pearson revealed a third round of restructuring under Mr Fallon, signalling more redundancies after 4,000 staff were cut last year, when it sought similar savings.

Pearson is under fire from shareholders for deciding to pay Mr Fallon a bonus last year equivalent to a 20pc pay rise despite having delivered the worst year in the company’s 50-year history on the public markets. Its first-quarter results were in line with forecasts, an improvement on a long run of downgrades and profit warnings as its core US higher education business has been hit by lower college enrolments and a structural shift away from traditional textbook sales.

Shares in International Airlines Group (IAG) were also strong after British Airways owner beat expectations by posting record profits for its traditionally weak first quarter. Operating profit at IAG, which also owns Iberia and Aer Lingus, jumped 10pc to €170m in the first three months of the year compared to €155m for the same period in 2016. The results were buoyed by an almost 11pc drop in fuel costs. However, revenue fell nearly 3pc to €4.9bn. Chief executive Willie Walsh said the recent launch of the IAG’s low-cost long haul airline Level had “already been extremely successful” and was running ahead of expectations.

RSA, the large insurer with considerable operations in Horsham, climbed to new monthly highs after net written premiums rose 14pc to £1.7bn in the three months to March 31. Elsewhere, another local employer, G4S, the high-profile security services firm, reported a 9pc rise in first-quarter revenues, sending shares upwards.

By David Pegler, Brighton Capital Management