Energy Sector Stocks Hurt by Falling Oil Price

A number of ASX listed energy companies have been hurt by a falling oil price today. These include Oil Search Limited [ASX: OSH] down 2.63%, Woodside Petroleum Limited [ASX:WPL] down 1.69% and Sundance Energy Limited [ASX:SEA] down 2.33%.

Here’s what WTI has been doing for the past three months:

Oil Price

Source: marketindex.com.au

In short, it has been a relentless downward push.

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Oil prices approaching a bottom

For those investors with holdings in the ASX’s energy sector, many will be wondering when the pain will end.

With a combination of massive US and Saudi Arabian output, the downward pressure on prices has been building.

Saudi Arabia is now pumping above 11 million barrels per day and has been hesitant to cut production in the wake of the killing of Jamal Khashoggi.

US shale could provide support

Meanwhile, the big story is that the US has now become the world’s largest oil producer and is now a net exporter of oil for the first time since data was collected in 1991.

The US is now producing 11.7 million barrels per day.

The announcement of an OPEC production cut proved to be a false dawn.

The real source of support could be the fact that shale oil just doesn’t get any cheaper, i.e. the low prices eventually put financial strain on producers.

As Morgan Stanley wrote in recent note, ‘Total U.S. shale oil growth is highly sensitive to WTI prices in the $40-60 range.

Short term, there are real concerns about slowing global growth amid the trade war.

Long term however, oil demand is projected to continue to rise with significant growth from developing countries:

Oil Price

Source: Reuters

As a result, a recovery in the price of oil and oil stocks may take some time to materialise.

Regards,

Lachlann Tierney,

For Markets & Money

PS: Free Report: 10 ASX Resource Stocks you should be watching. Download now.


Lachlann Tierney is a writer for Markets & Money. He has lived and studied in the US, the UK, and Australia. With an MSc from London School of Economics (LSE) he brings a strong grasp of geopolitics and world affairs to his analysis. Lachlann is always on the lookout for the news that will give you an edge in tomorrow’s markets.


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