Why Oil Stocks Are Down — An Oil Price Forecast

At time of writing, the share prices of Woodside Petroleum Ltd [ASX:WPL], Oil Search Ltd [ASX:OSH] and Beach Energy Ltd [ASX:BPT] are all down today.

Of these stocks, Beach Energy is the one suffering the most, down 4.8% and trading at $1.59.

Over the last month, these three stocks have been hurt, and as of today they are experiencing some steep falls:

oil stocks are down

Source: tradingview.com

Why the steep fall?

The main thing that drives these three stocks’ performance is the price of oil.

These stocks rise and fall on the price of oil and as you can see there is a very strong correlation between these stocks and the price of oil over the last year:

why oil stocks have fallen

Source: tradingview.com

In this chart we see WTI oil (blue) matching up closely with Woodside and Oil search, with Beach Energy outperforming, but still correlated strongly.

This is partly due to Beach Energy’s strong year underpinned by a 92% increase in sales revenue and a 108% increase in operating cash flow.

Beach Energy is also the smallest of the three with a market cap of $3.8 billion.

To understand the steep fall in the last 24 hours, a couple things need to be unpacked. 

Firstly, the 5% fall in the price of oil came as Saudi Arabia pledged to boost oil output.

Combined with investors fearing a slowdown in global growth, oil has fallen to a two-month low.

Secondly, crude oil inventories in the US have increased by 9.88 million barrels for the week ending October 19.

In simple terms, demand weakens as the US has more oil on hand already.

We look at Aussie oil stocks in our free mining report which can be accessed here.

Looking ahead, where do oil and ASX oil stocks go?

Forecasting is not easy as oil production is tied to unpredictable world events as well as global growth.

Below we have a chart which shows how oil prices interact with these two things since 2001:

How oil interacts with global conflict

Source: tradingview.com

So, as you can see, if you are investing in oil stocks on the ASX a lot depends on how you think events will go.

Are you bullish and see continued growth and increasing conflict?

Or are you a bear and see slowing growth and reduced conflict?

One scenario sees growth slowing but increased conflict.

This could mean that oil trades sideways for a couple years around the $65–$70 range.

Whatever you do, you need to stay in the loop with global affairs to give yourself the best chance of turning a profit.

Regards,

Ryan Clarkson-Ledward,
For Markets & Money

PS: Checkout our profile of oil stocks in our free mining report. It includes a great list of 10 stocks that our resource analyst Jason Stevenson has investigated.


Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:


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