What Happened to Santos’ Share Price?
Shares in oil and gas producer Santos [ASX:STO] fell nearly 3.5% today versus an increase of around 0.5% for the broader market. The stock price was over $15 dollars in September 2014 but is now around $8.
Why Did This Happen to STO Shares?
The main reason behind the fall was the near 5% fall in the oil price in US trade overnight. In addition, a story on the Financial Review’s website this afternoon reported that China could experience a glut of LNG (liquid natural gas) in the next few years due to falling demand. STO has large exposure to a number of new LNG projects in Australia.
What Now for Santos?
Santos is heavily dependent on the oil price. Moves in the price of crude oil impact other energy prices like natural gas. Given the 50% fall in oil over the past six months, this puts a lot of pressure on Santos’ earnings.
The market thinks the oil price will rebound quickly and that Santos’ profits will do the same. Consensus earnings estimates predict a doubling of profits in 2016 from 2015 levels. If the oil price doesn’t rebound, then Santos is very expensive at these levels and you should expect more share price falls.
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