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This is what I’m doing about the Tullow Oil share price right now!

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Royston Wild
·3-min read
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Silhouette of an oil rig
Silhouette of an oil rig

It’s been an eventful fortnight in the life of the Tullow Oil (LSE: TLW) share price. Since sweeping to 14-month highs close to 61p per share in mid-March the oil stock has experienced heavy selling. It was last trading at 48p per share.

Tullow Oil’s share price spiked to those aforementioned peaks as Brent oil prices rocketed. It stands to reason then that the oilie’s slumped as black gold prices have stepped back again. After rising close to $70 per barrel — its most expensive since May 2019 — the crude benchmark is back trading around $62.

Is this a temporary setback for the Tullow Oil share price recovery? Or will this FTSE 250 stock keep on tanking?

On the bearish side

There are several factors that could keep Tullow Oil’s share price on the back foot:

#1: Rising oil demand fears. In the near term at least the outlook for Brent values can be described as bleak. The benchmark’s recent reversal reflects the tightening of Covid-19 lockdowns in parts of Europe and vaccine rollout problems on the continent. Sellers are fearing that new restrictions will hit oil demand hard in the short-to-medium term. The rapid spread of virus variants across swathes of the US threaten to keep Brent prices on the back foot, too, and with it the Tullow Oil share price.

#2: Fresh production problems. Mass production of any natural resource is replete with danger. Exploration results can often disappoint and the complexities of commodity excavation can cause havoc to production levels too. Tullow Oil itself has been no stranger to problems on this front as my colleague Zaven Boyrazian recently explained.

#3: Balance sheet pressure keeps building. Free cash flow improved in 2020 and total net debt levels at Tullow fell. But don’t be mistaken: the oil stock’s balance sheet remains under considerable strain. Gearing (a measure of debt to equity) actually rose to three times last year, from two times in 2019.

Why Tullow’s share price could rebound

That said, there are several reasons why the Tullow Oil share price could zip higher again soon. Naturally, an improvement in the Covid-19 crisis would push up Brent prices again and with it the value of this UK share’s stock. There’s also the possibility that the OPEC+ group of oil-producing nations will keep announcing production curbs to support crude prices.

And there’s the fact that Tullow Oil hopes heavy investment in its West African assets will deliver meaty profits growth from next year. It says that this robust investment on “cash generative producing assets” is anticipated “to increase production in 2022 and sustain it for the longer term”.

That said, I’m not convinced that the Tullow Oil share price will break out of its tailspin soon. I’m concerned about the implications of a prolonged Covid-19 battle on oil demand and on the company’s fragile balance sheet, plus the growing use of renewable energy sources on the company’s long-term picture too. I’d much rather buy other UK shares right now.

The post This is what I’m doing about the Tullow Oil share price right now! appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021