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Sasol worth its weight in Oil?

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Black Gold” has seen new optimism enter the market as Oil prices reached its highest levels since March, dragging our beloved petrochemicals company, Sasol Limited along for the ride.

Sasol Limited (SOL)

Investors favorite fuels and chemical company and most bought share on the EasyEquities platform, Sasol Limited (JSE: SOL) has been grabbing our attentions this week.

We all know Sasol’s share price came under immense pressure earlier in the year as mounting debt coupled with an oil market crash started to weigh in on the petrochemicals company.

Here are some note worthy updates on Sasol’s debt crises:

20 Nov – “South Africa's Sasol said on Friday shareholders have approved a proposed agreement to form a joint venture with chemical company LyondellBasell Industries at its U.S Lake Charles Chemicals Project in a bid to pay down its debt pile. LyondellBasell agreed last month to acquire a 50% stake of Sasol's base chemicals business at Lake Charles for $2 billion and operate the newly formed joint venture. The world's top manufacturer of motor fuel from coal has been battling high debt amid lower oil and chemicals prices, prompting it to search for a partner at the Louisiana-based plant.” - Reuters

24 Nov – “Sasol Ltd said on Tuesday it had agreed to sell its 50% interest in a high-density polyethylene (HDPE) manufacturing plant in Texas, to INEOS Gemini HDPE Holding Co for $404 million, to focus on specialty chemicals and cut down debt.” - Reuters

The South African petrochemicals company, the world's top manufacturer of motor fuel from coal, has been restructuring its operations to cut down debt. Sasol's total debt was 189.7 billion rand ($12.34 billion) for the year to June 30. "Sale represents a further step in achieving Sasol's strategic and financial objectives by accelerating the focus on specialty chemicals and reducing net debt," the company said.” - Reuters

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Oil Market

What a year for Crude Oil? Going from an Oil Market crash earlier in the year to reaching its highest levels since March as renewed vaccine optimism and the U.S Presidential transition drive markets.

On Tuesday WTI Crude increased 4.11% while Brent Crude was up 3.34% and “The last time WTI Crude traded at $45 per barrel was eight months ago, in early March this year, just before Saudi Arabia and Russia disagreed on how to manage oil supply in the pandemic and started a brief oil price war that contributed to the price collapse together with the demand destruction.

While we can expect “OPEC+ meets early next week to decide whether to roll over the current cuts through the first quarter of 2021—an outcome that the market has already priced in.” - Tsvetana Paraskova

Another factor EasyVestors should look out for is the Crude Oil Inventories which could place a damper on our beloved Sasol Limited’s share price efforts to move higher.

The American Petroleum Institute (API) reported on Tuesday a build in crude oil inventories of 3.8 million barrels for the week ending November 20. Analysts had predicted an inventory build of just 127,000 barrels, and for the short price run due to favorable covid-10 vaccine news over the last week or so, it likely means curtains.” - Julianne Geiger

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Informed decisions

Considering the current positive correlation between Sasol Limited and the price of Brent Crude, we might expect the two to move in tandem, which is great if oil prices continue to rise. The market is currently expecting oil prices to rise for another week until the inventory build comes through which might signal some downside pressure on the horizon for Sasol.

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Sources – EasyResearch, Reuters, Oilprice.com

Take note: stock data was taken on 25/11/2020. 

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Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table

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