Russia, OPEC Members to Discuss Easing Oil Output Cap
Russian oil minister says country sees eye-to-eye with Saudi Arabia on oil policy
Russia and other large oil producers will discuss relaxing an agreement that has cut oil output and helped support crude prices at a meeting next month, the country’s oil minister said Thursday.
Alexander Novak said he would discuss with counterparts from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries the possibility of a “gradual output recovery,” according to RIA, a Russian state news agency. The talks will take place during a scheduled OPEC meeting in Vienna.
Mr. Novak said Moscow and Riyadh continued to see eye-to-eye in terms of oil policy, and are acting with a “common approach” to any further agreement to limit supplies.
Saudi Arabia and Russia orchestrated a deal in 2016 to rein in production from the world’s biggest pumpers of crude, including members of OPEC, a cartel of some of the world’s biggest producers. That deal effectively cut production by about 2% compared with levels at the time, and has helped reduce a large surplus of stored crude around the world and lift prices from their deep, long trough of recent years.
More recently, as international crude prices have risen to around $80 a barrel, pressure has mounted for the group to open up the spigot again.
U.S. President Donald Trump has said prices are too high, while analysts have warned that supply outages in Venezuela, as well an expected reduction in exports from Iran because of new U.S. sanctions, could tighten markets dramatically, leading to an acceleration in rising crude prices.
Russia, Saudi Arabia, other OPEC members and a handful of other big producers are currently cutting their collective output by about 700,000 barrels a day more than necessary to comply with the 2% cap. That has market participants expecting at least some loosening by the pact’s partners. Saudi Arabia has said it is monitoring markets closely and was ready to step in and boost output quickly if necessary to stabilize markets.
In Russia, too, there has been internal pressure to ease the output cap. Russian producers have poured billions of dollars of new investment into their oil fields. In recent months, they have pressured Moscow to allow them to produce more oil, to capture returns on that investment during a time of higher prices.
Gulf OPEC members, mainly Saudi Arabia and the United Arab Emirates, have been talking with other producers including Russia about the possibility of easing the cut at the OPEC meeting in June, according to people familiar with the matter.
“We are currently in talks with other producers to see if this is something that we should discuss and decide on in Vienna. We don’t like volatility and we don’t want to hurt demand,” said a senior Saudi official.
>>> Consensus Buys
* MercadoLibre (MELI): Funds such as Third Point, Viking Global, and Tiger Global initiated new stakes in this South American e-commerce player. Dubbed the ‘eBay of South America’ the company operates a selling platform and online payments arm. The company has posted growth in users, gross merchandise value (GMV), and payments, but at the same time they have large exposure to Argentina, which is facing potential threats of a recession and hyperinflation.
* iQiyi (IQ): Hedge funds like Omega Advisors, Tiger Global, and Viking Global show new stakes in this company that recently completed an initial public offering (IPO). This is Baidu’s (BIDU) streaming video service in China. Dubbed ‘the Netflix of China,’ the company is poised to benefit from secular trends. At the same time, they face intense competition from the likes of Tencent Video and also Alibaba’s Youku Tudou.
* United Airlines (UAL): There weren’t a lot of consensus new buys this quarter, and UAL rounds out the list as Coatue Management, Tiger Global, and Appaloosa all show new positions. The airline industry has consolidated and the thesis is that rational activity should prevail going forward. Warren Buffett’s Berkshire Hathaway famously acquired a handful of airline stocks back in the third quarter of 2016 and continues to hold.
>>> Consensus Increased Positions
* Facebook (FB): This is the highest number of funds that have bought one stock in a given quarter in the newsletter’s history. So if you’re looking for a consensus buy among top funds, this was it in the first quarter. This isn’t a complete list, but funds such as Hound Partners, Third Point, Tiger Global, Coatue, Lone Pine, and Viking Global were all out accumulating more shares. The stock sold off on a flurry of bad news, as the company was hit with questions surrounding Russia’s use of the platform in the 2016 US election, as well as a separate data privacy issue with Cambridge Analytica. Shares have already recovered from the sell-off, as CEO Mark Zuckerberg testified before Congress to address concerns. Bulls point to a dominant social media platform enjoying massive network effects that’s also seemingly cheap on valuation given its growth, while bears point to the looming threat of potential regulation and other headline risks.
* Alphabet (GOOG): Hedge funds were also out accumulating shares of another tech giant: Google’s parent company. Managers including Tiger Management, SPO Advisory, Farallon, Appaloosa, Maverick Capital, and Lone Pine all increased their position sizes. This is another stock that bulls argue is quite cheap considering it trades at similar multiples as other blue chip stocks, but is still growing much faster and has exposure to some big potential future trends like A.I. / machine learning, autonomous vehicles, and more.
* Microsoft (MSFT): If it’s not evident yet, tech stocks were all the rage in the first quarter. Funds seem to favor these giants that haven’t stopped growing and have overwhelming market power in their respective industries. Managers that acquired more MSFT shares were Farallon, Maverick, Lone Pine, Viking, and Tiger Global. While this activity is notable, it’s also worth pointing out that longtime holder ValueAct sold completely out of their concentrated position during Q1.
* Monsanto (MON): This is the second consecutive quarter that MON has ended up on this list. This time around, mainly arbitrage-focused firms were buying: Paulson & Co and Farallon, though Berkshire Hathaway was also a buyer. The company is set to merge with Bayer, as the deal has been approved by regulators.
>>> Consensus Sold Positions
* Comcast (CMCSA): Cable stocks were sold en masse by hedge funds during the quarter. Appaloosa, Pennant Capital, Tiger Global, and Tiger Management all exited their CMCSA stakes entirely. Recently, concerns surrounding ‘cord cutting’ have re-surfaced as investors cast a skeptical eye on the company’s video subscriber numbers. And perhaps more importantly, investors haven’t been fond of Comcast’s recent bid for Sky in the UK, deeming this potential acquisition as ‘empire building’ and perhaps something that would water down CMCSA’s set of assets. Management, however, points out to their past history of successful acquisitions and sees value in Sky. This situation has a few moving pieces though, as 21st Century Fox (FOX) had been trying to acquire the rest of Sky, but then received a takeover offer from Walt Disney (DIS) themselves. The situation remains fluid.
* Charter Communications (CHTR): Once a hedge fund favorite, this stock seems to be falling slightly out of favor with some managers. Coatue Management, Hound, Lone Pine, and Tiger Global all exited their stakes. The cable company faces the same video subscriber concern as Comcast above. Many other managers still own CHTR, though sentiment seems to have shifted as some of management’s projections haven’t quite come to roost as of late. The company will eventually be rolling out a wireless service to complement its other internet and TV offerings as they look to grow the number of consumer relationships and are less focused on pushing price at the moment.
* Dell Technologies (DVMT): Funds including Coatue Management, Omega Advisors, and Third Point all liquidated their stakes in this tech giant.
* Time Warner (TWX) & Express Scripts (ESRX): Both of these stocks are risk arbitrage trades, as they’re involved in pending mergers. TWX is set to be acquired by AT&T (T) pending regulatory approval, while ESRX is being acquired by Cigna (CI). Funds that sold out of TWX include Coatue, Third Point, and Viking. Funds that exited ESRX include Brave Warrior, Baupost Group, and ValueAct. Many times, funds not running arbitrage strategies will exit shares before a deal closes to put the capital to work in another investment idea. There’s no way to know for certain that’s the case here, but it’s one potential explanation.
>>> Consensus Decreased Positions
* Apple (AAPL): Funds reducing exposure to the iPhone maker include Maverick, Greenlight, SQ Advisors, and Coatue Management. Concerns over the company’s iPhone sales hit the stock over the past few months. While those concerns proved to be unfounded based on the company’s recent results, sentiment seems to have shifted in the stock. Investors are mainly pointing to it as a capital return story, as the company unveiled a massive stock buyback due to the recent tax law changes that allowed them to repatriate their massive overseas cash pile. And while these funds were reducing AAPL positions, it’s also worth pointing out that Warren Buffett went the opposite direction and bought billions of dollars worth of shares during the quarter.
* Alibaba Group (BABA): This is the second consecutive quarter this stock shows up on this list. Shares have recently traded sideways after having a huge 2017 performance-wise. Funds that reduced position sizes in this Chinese e-commerce giant include Third Point, Appaloosa, Coatue, and Lone Pine.
* Liberty Global (LBTYK): This European cable giant pops back on this list again after a brief absence. Hedge funds selling shares this quarter were Glenview Capital, Brave Warrior, SQ Advisors, and SPO Advisory. The company recently announced a deal where they’ll be selling some assets to Vodafone (VOD), pending approval.
* Conduent CNDT): Firms reducing their exposure to this stock include Pennant Capital, Glenview Capital, and Greenlight Capital. This business process services company was formed as a divestiture from Xerox (XRX) back in 2017.
* Visa (V): This global payments giant has been a strong performer over the years. As such, it seems likely that they’re taking profits while maintaining a position. Hedge funds that sold some V shares include Glenview, Maverick, and Viking Global.
Gapping down
In reaction to disappointing earnings/guidance:
- SAFM -9.4%, LB -5.3%, NTAP -3.2%, TOUR -2.6%, WUBA -2.4%, BBY -2%, HRL -0.6%
Select foreign auto names showing weakness following reports that Trump Administration is considering tarrifs on new imported autos :
- TTM -4.4%, FCAU -1.8%, TM -1.4%
Other news:
- REPH -48.9% (received a CRL from the FDA Office of Drug Evaluation II regarding the NDA for IV meloxicam)
- QUIK -25% (prices $15.5 mln common stock at $1.38)
- MLNT -9.2% (prices upsized 22 mln share common stock offering at $5.00/share)
- EIGR -5.4% (commences an underwritten public offering of common stock)
- DB -4.9% (will significantly reshape its Equities Sales & Trading business; the bank aims to reduce headcount in this area by approx 25%)
- AGNC -3.2% (announces public offering of 30.0 mln shares of common stock)
- SAIL -2.4% (prices upszied public offering of 17.8 mln shares of common stock offering by selling stockholders at $22.50/share)
- FND -1% (announces secondary offering of 10 mln shares of common stock by funds affiliated with Ares Management (ARES) and Freeman Spogli; also files mixed securities shelf offering )
- CASY -0.8% (following late volatility on JANA stake speculation)
Analyst comments:
- KPTI -5.6% (downgraded to Neutral from Outperform at Wedbush)
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Gapping up
In reaction to strong earnings/guidance:
- SMRT +14.1%, WSM +11.7%, BILI +8.5%, UVV +8%, CPRT +3.8%, LASR +3.6%, MOD +0.5%
Other news:
- BW +18.3% (Steel Partners Holdings files amended 13D -- prepared to acquire all Shares it does not currently own for a price in the range of $3.00-3.50 per Share in cash)
- ACRX +9.5% (announces the acceptance of its NDA resubmission for DSUVIA by the FDA; PDUFA goal date of November 3)
- CELG +1.2% (authorized the repurchase of an additional $3 billion of the Company's common stock)
- IDRA +1% (entered into a clinical trial collaboration and supply agreement with Bristol-Myers)
- HUN +0.9% (approves increase to share repurchase authorization up to $1 Billion; Huntsman also announces a new $1.2 billion unsecured revolving credit facility )
- KR +0.5% (Kroger and Home Chef, the country's largest private meal kit company, announce merger agreement), .
Analyst comments:
- APLS +8.9% (initiated with a Overweight at Cantor Fitzgerald; tgt $52)
- DE +1.5% (upgraded to Buy from Neutral at UBS)
- BABA +0.9% (target raised to $300 from $250 at Raymond James, a Street high)
- AVGO +0.6% (initiated with a Outperform at Evercore ISI; tgt $300)
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Gapping up:
- BW +20.6%, WSM +15.6%, SMRT +13.8%, BILI +10.1%, APLS +8.9%, UVV +7.3%, MRNS +7.1%, LASR +3.6%, NRG +2.6%, TOUR +1.5%, F +1.2%, ELF +0.9%, HUN +0.9%, GM +0.8%, SNPS +0.7%, KR +0.5%, MOD +0.5%
Gapping down:
- QUIK -8.3%, EIGR -5.4%, LB -5.1%, NTAP -4.2%, AGNC -3.2%, WUBA -2.1%, FND -1.7%, MITK -1.7%, FCAU -1.5%, TM -1.4%, CPRT -0.9%, CASY -0.8%, HRL -0.6%
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