JOHANNESBURG – Sasol continued its free fall yesterday slipping 1.06 percent on the JSE to R55.02 as the price of Brent crude oil collapsed to below $20 a barrel for the first time in 18 years after US oil benchmark prices plunged to below $0 a barrel on Monday.
However, analysts said the petrochemical giant could ride it out, as it had up-scaled its hedging strategy to mitigate against the impact of the price movements.
Lester Davids, a trading desk analyst at Unum Capital, said Sasol’s hedging programme would cushion the company from price volatility.
“It should be noted that a portion of the group’s production is hedged at approximately $33 a barrel which provides some form of cushioning against a rapidly declining oil price,” Davids said.
On Monday, Sasol plunged nearly 10percent as oil prices tumbled to record lows amid rising stockpiles prompted by a slump in demand due to the coronavirus pandemic, differences among the world’s top oil producers, and continuing bickering between Russia and Saudi Arabia.
Sasol hit a low of R52.01 on the JSE shortly after 2pm, after opening at R56.71, as the international price of crude fell to a 21-year low.
Sasol has lost 80 percent and wiped more than R150 billion off its market value this year on the back of its ballooning Lake Charles Project in the US and the slump in oil prices.
Last month, the company said it had oil hedges in place for about 80percent of its fourth quarter 2020 production of synfuels at about $32 a barrel. Sasol said that crude oil hedging execution would continue for the next 12 months.
Sasol also reported that it had developed a comprehensive response strategy after its credit rating was hit by the Covid-19 pandemic and oil price volatility. The company also plans a potential rights issue of up to $2bn, which remains subject to the progress of other initiatives.
Vestact Asset Management portfolio manager Michael Treherne said Sasol would survive in the immediate term as the price of Brent Crude was still more than $25 a barrel.
“They have also hedged around 80percent of their oil exposure, so the company is mostly insulated in the short run. If oil remains low for the long term, then it will negatively impact on profits.”
By Dineo Faku