WTI oil price slumps to 1999 levels, and Premier Foods feasts on triple layer of good news

“The FTSE 100 nudged ahead at the start of the new trading week, sitting just above 5,800. Tobacco, telecoms and consumer goods companies were the star performers versus miners and housebuilders as the laggards,” says Russ Mould, Investment Director at AJ Bell.

“Asian stocks were mixed but most of Europe traded higher. The pound slipped 0.3% against the US dollar to $1.2468.

“The big news on the commodities market was the slump in US oil benchmark WTI Crude, down 18.7% to $14.85 per barrel which is its lowest level since 1999. In contrast, the Brent Crude oil price only fell 2.4% to $27.41 per barrel."

WTI oil price slump

“In a sign of the testing times we are living through, the US oil benchmark, WTI, is trading at its lowest level this century.

“Oil is still one of the main fuels for a global economy which is effectively off the road while countries look to contain the coronavirus.

“As a result there is too much supply to meet current levels of demand and oil producers’ cartel OPEC and its affiliates are not cutting production quickly enough. The reality is that they probably couldn’t even if they wanted to.

“WTI is also in a state of ‘super contango’, with the gap between the price paid for oil today and contracts for delivery in future months at its highest level in more than a decade.

“That is encouraging traders to store oil and hold out for higher prices. Today’s barrels of oil are being sold at distressed prices as they struggle to find buyers and amid fears there may not be capacity left to house them.

“The situation is more acute in the US given the reliance on the key infrastructure hub in Cushing, Oklahoma. This helps explain the widening spread between WTI and Brent, the price used outside North America.

“One concern for the market will be the knock-on effect on US banks which lend to a domestic oil industry which will be straining under the pressure of rock-bottom prices.”

Premier Foods

“Mr Kipling maker Premier Foods has been slowly tempting investors with some tasty morsels over the past few years with improvements to sales, profit and cash flow. Now it’s time for the full feast as it delivers a triple layer of good news. Pension pressures are set to ease, trading is ahead of expectations and the ratio of net debt to earnings is lower than targeted.

“All these factors put Premier Foods in a better position to start shaking off its reputation as a zombie company which hasn’t been able to invest much in its business. Guidance that pension deficit contributions will be greatly reduced essentially gives the company more scope for product innovation, marketing and upgrading its assets. Further down the line it could even contemplate paying dividends.

“The market has been waiting for this news for a long time, hence why its share price has rocketed on the announcement.

“However, this won’t be an easy win for Premier Foods. There is intense competition from private label suppliers and rival brands, and near-term it faces the challenge of likely subdued consumer spending if the country goes through a difficult recession.”

These articles are for information purposes only and are not a personal recommendation or advice.