Oil Price on the Rise
Oil prices have made a real come back in the latter half of this year.
Since its low on 22 June, the basket of OPEC (Organisation of the Petroleum Exporting Countries) crude oil prices has rallied more than 43%.
In the last 12-months, the same basket is up more than 36%.
Why has oil suddenly rallied more than 43%?
Largely it’s due to speculation.
As reported by Bloomberg:
‘Speculative inflows have been a central feature of the rally in oil prices since the summer. The whipsaw in sentiment, fuelled by a mixture of OPEC recommitting to supply cuts and the resurfacing of geopolitical concerns, is striking. Break down the long (buy) and short (sell) positions for managed money and you can see the swing between elation, despair and elation again, all in the space of this year.’
Take a look at the long and short positions since 22 June.
The amount of long positions (buying) has increased 48%, from 745 to 1,103 million barrels.
Over the same time, the amount of short positions (selling) decreased 68%, from 358 to 113 million barrels.
‘…further gains require catalysts beyond business-as-usual from OPEC and its associates.
‘These could come from stronger demand or lacklustre U.S. production growth — something OPEC appears to be counting on, especially — or more geopolitical tremors. The latter may well help define 2018, given the pace of change in the Middle East and the mixed messages coming out of Washington when it comes to diplomacy in the region.
‘Absent such impetus, those billion barrels could turn from rising tide to deluge.’
Bad News for Oil Stocks?
This might also be bad news for oil stocks.
Aussie oil and gas businesses Santos Ltd [ASX:STO] and Woodside Petroleum Ltd [ASX:WPL] have climbed 31% and 9% in the last three months.
Source: Google Finance
Much smaller oil and gas companies like Calima Energy Ltd [ASX:CE1] are up even more. Since mid-July, CE1 has rocketed up 363%.
If oil prices were to fall substantially, then all three stocks might follow it down.
I’d suggest you play it safe for now.
Junior Analyst, Markets & Money
PS: Commodities prices came back in 2016 and rallied hard heading into 2017. Could they continue to rally heading into 2018?
Our resource analyst, Jason Stevenson thinks so. Jason is one of the sharpest minds when it comes to the resource sector. And he’s written a report about his top 10 mining stocks trading on the ASX right now.