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Why ASX 200 oil stocks have been crushed in May

Sebastian Bowen
Oil price chart showing falling oil price

May has been a rough month for the ASX oil stocks. After a fresh slide in the oil price over the weekend, the share prices of Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and Beach Energy Ltd (ASX: BPT) are looking increasingly bearish—it looks as if the highs we reached in April are rapidly fading.

After reaching an all-time high of $2.27 in mid-April, Beach is now under the $2 mark, swapping hands for $1.94 at the time of writing (a fall of nearly 15%). Woodside has shed almost 5% in the past week alone and Santos almost 6%.

Why have these share prices tanked?

Oil is a commodity that is very closely tied to global economic growth (perhaps more than any other commodity). The WTI crude oil price per barrel was trading near US$64 per barrel at the start of May but has cratered over the past week and is now sitting at around $58.80, after going as low as $57.90. Of course, this is nowhere near the lows of US$42.50 that we saw around Christmas as the stock market correction reached its crescendo. But it again demonstrates the closeness of the oil price to perceptions of current and future global growth.

An additional factor to consider is our own Aussie dollar. Oil is universally bought and sold in US dollars and a falling Australian dollar (which is what we have had over the past few months) means that oil can change in price for Australian companies from this angle as well.

What is the outlook for oil shares going forward?

The significant geopolitical short-term threats to oil remain the US–China trade war, as well as the tensions with Iran and Venezuela (both large oil-exporting nations). If things escalate with any of these situations, oil will be affected. These are machinations that I believe any investor with exposure to oil should keep in mind.

Although companies like Santos, Woodside and Beach are more of the ‘pure’ oil players, larger companies like BHP Group Ltd (ASX: BHP) are also exposed to oil prices. Conversely, falling oil prices can be a boon to transport companies like Qantas Airways Limited (ASX: QAN).

In times like this, it pays to examine your own portfolio and be sure of the links that the companies you own have to oil prices—they may not be obvious on the surface.

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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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019