The oil price continues to crash. The price of a barrel of Brent Crude was fetching nearly US$70 a barrel at the start of January. Today, it sits around US$54 – that’s a 20% drop in just one month.
But what does this mean for ASX oil companies? And more importantly, are there any buying opportunities out there to take advantage of these moves?
Why is the price of oil falling?
Fears surrounding the dreadful coronavirus out of China appear to be the main causes for the steep drop, with gyrations from the US presidential primaries a possible contributing factor.
Oil is still the lifeblood of the global economy (despite the recent rise of Tesla) and its price tends to rise and fall on the back of the economic growth outlook.
The coronavirus outbreak is likely to impede the Chinese economy (the world’s second largest) for at least the short term. This in turn will dampen demand for oil, and will likely be adding to the downward pressure on the crude price for the foreseeable future (at least until the virus is contained).
What does this mean for ASX oil stocks?
As you can probably imagine, a falling oil price is not good news for the companies that extract black gold.
But the big ASX oil companies haven’t really lost too much steam on the back of this 20% turnaround.
The ASX’s largest oil company Woodside Petroleum Limited (ASX: WPL) is today trading at $33.47 (at the time of writing) – a mere 7% off the 2020 high of $36.14 it recorded in early January.
It’s a similar story with Santos Ltd (ASX: STO). Santos shares are today sitting at $8.27, not too far from the company’s own 52-week high of $9.07, reached in January.
We have a bigger reaction in the Oil Search Limited (ASX: OSH) share price. It was going for almost $8 last month, but today is trading for $6.46 – an 18.6% dive.
Beach Energy Ltd (ASX: BPT) was also a big loser. Its shares were at $2.91 a fortnight ago but are selling for $2.43 today (down 16%).
It’s not totally clear why some ASX oil stocks are feeling the pain more than others. It’s possible that the size of Santos and Woodside and their subsequent lower costs of production mean the profitability hit from these moves won’t be as harsh as that experienced by smaller players like Oil Search and Beach.
Oil is a highly cyclical commodity and buying when prices are low could be a winning strategy. Therefore, if you have been looking for an ASX oil stock to add to your portfolio, I think Oil Search and Beach are at attractive levels after these price moves.
The post Oil price crashes! Are ASX oil shares a buy? appeared first on Motley Fool Australia.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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