What’s going on here?
Abu Dhabi National Oil Company (ADNOC) reportedly wants to put a rock on BP’s finger, joining a long list of potential suitors.
What does this mean?
BP’s stock has trailed behind other major oil companies for years, making it relatively cheap. And despite stacks of cash and access to liquid gold, even Big Oil can spot a bargain.
➡️ Shell, ExxonMobil, and Chevron have all already considered buying parts of BP.
👀 Now, ADNOC is said to be casting an eye over BP’s valuable liquefied natural gas business. Although, some insiders say the state-owned firm might just buy the whole company.
🤝 BP and ADNOC have moved in the same circles before. They’ve partnered on projects in Abu Dhabi and Egypt, and BP’s former CEO is on one of ADNOC’s boards.
Why should I care?
For markets: Give it to me Strait.
⛴ A fifth of the world’s oil travels through the Strait of Hormuz, a narrow shipping lane near Iran – and any further escalation in the Middle East could snap the channel shut in an instant.
💰 According to JPMorgan, that could push benchmark oil price Brent crude to $130 a barrel – double the roughly $60 predicted otherwise.
➡️ If oil prices do go up and are expected to stay that way, oil producers could rush to put their fresh profits to work by expanding operations – and buying smaller rivals is a quick and easy way to do that.
The bigger picture: Gold is the market’s emotional support asset.
If liquid gold suddenly becomes more expensive, investors might seek safety in the regular old solid version. Gold is famous for holding its value when other assets can’t, acting as a financial comfort blanket in riskier economic times. And central banks have already stocked up. In fact, the shiny stuff now makes up a fifth of their reserves – the highest share since the 1960s.
