Morning Commentary: Energy convertibles lower but resilient despite OPEC production pact failure

By Rebecca Melvin

New York, April 18 – Energy convertibles were trading at slightly lower prices but with a stronger bid than would typically be seen early Monday after global oil producers failed to agree to freeze oil output at a meeting Sunday in Doha, Qatar.

Russia and members of the Organization of Petroleum Exporting Countries could not negotiate an agreement largely because Iran, which has been exporting more oil following the lifting of economic sanctions on that country, was reluctant to agree to production limits and then Saudi Arabia also declined to agree to limits.

Oil prices initially slumped more than 5% late Sunday but were holding up in early trading. Meanwhile, equities turned around, and that was influential on what was happening in the convertibles market.

Bidders were stepping in and buying at a little lower pricing, a New York-based convertibles trader said of energy names, including Chesapeake Energy Corp. and Whiting Petroleum Corp. “But offers are difficult to find.”

There were also other factors influencing the energy patch, including a Kuwaiti oil strike, which was helping keep a floor under oil prices, the trader said.

In general, the expectation is that the supply and demand balance is going to be pretty positive and that oil is going to be stable if not higher even without the OPEC commitment, the trader said.

The price of West Texas Intermediate crude oil for June delivery on the New York Mercantile Exchange was last down $1.11, or 2.7%, at $40.60 per barrel.

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