Sasol shares briefly rally on stronger oil price before paring gains

Sasol shares gained as much as 14% on Wednesday as the price of Brent Crude oil rose above $40 a barrel for the first time in nearly three months, before pairing gains to trade up 1.5% in the early aftrenoon.

After coming under pressure from the combined effects of weaker oil prices and the global impact of Covid-19, shares in the petrochemical firm peaked at R133.83 in mid-morning trade, the highest two months, after dipping below R30 in early March.

In the early afternoon, Sasol shares were trading at R119.53.

The plunge in March wiped a significant portion of the company's market value, turning a company which had long been one of the largest on the JSE to one of its worst performers, and raising jitters among investors.

But one analyst cautions that despite Wednesday's bump, the company may not be out of the woods yet.

"The recent gains in Sasol's share price can largely be attributed to the increase in the price of oil, to which Sasol's prospects are highly geared," said Mohamed Mitha, Equity Analyst at Mergence Investment Managers.

He noted that the supply and demand dynamics in the oil market have improved to some extent with news of OPEC+ considering an extension of their production cuts to beyond June 2020.

"Demand also appears to be improving with many countries coming out of lockdown. Operationally, Sasol still faces significant short-term challenges as they aim to fix their balance sheet."

Sasol has been under pressure for many months, including from problems associated with the financing of its Lake Charles Chemicals Project in the US, and a $10 billion debt burden which the company is trying to rein.

The company has also announced a cash conservation package which included a disposal of assets and a potential rights issue of up to $2 billion.

In April, Sasol announced that it had suspended production at it inland oil refinery, Natref, due to an "unprecedented decline" in demand since the start of the national lockdown. Government as of June 1 has further eased lockdown regulations to level 3 to allow more industries to operate.