3 things only top investors know about plunging oil prices

Oil is plunging again. Here's what only the pros know about oil today and how it could impact Woodside Petroleum Limited (ASX:WPL) and Santos Ltd (ASX:STO).

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Here we go again!

The price of oil is falling again, and at a rapid pace.

Despite a glimpse of a recovery in February when the price of Brent Crude jumped 34% to US$62 per barrel, it's been all downhill from there. Oil producers (and investors) have watched helplessly as the price plummeted back to US$54, including a 4.2% fall over the weekend.

But before you make the call to sell your shares in Santos Ltd (ASX: STO), or splash out on Woodside Petroleum Limited's (ASX: WPL) huge 9% dividend, arm yourself with the information top investors are using for their decisions.

To give you the scoop, here are three things that only oil experts know about the current situation:

1. That storage tanks are filling fast, and that's bad news

The recent falls in oil price are in response to a monthly report issued by the Paris-based International Energy Agency (IEA) which raised alarm bells. The report warned that global oil supply again exceed demand in February and that U.S. crude oil stock piles may start to reach capacity.

If this happens oil producers will be forced to sell the surplus production which would "inevitably lead to renewed price weakness". This could force prices below the cost of production and be the first real driver of supply cuts.

2. That the number of oil rigs is falling

Oil service company Baker Hughes keeps a count of the number of U.S. and international oil rigs in operation. The company's most recent report, as of Friday last week, shows the number of oil rigs looking for oil in Canada has plummeted to just 85, down from 150 last week and 327 one year ago – a 74% drop.

In the United States oil rig numbers have fallen by 41% in the last 12 months to 866. One reason production has remained steady is due to a lag between drilling and production.

3. That Woodside Petroleum Limited is not a sure bet

Woodside Petroleum has been one of the best-performing energy producers over the last 12 months due to the company's strong mix of LNG production and increased pricing. However, there is a growing risk that high levels of production could start eroding the company's 2P energy reserves, which without increasing investment in exploration could start to fall.

Woodside currently has an approximate reserve life of 14 years, compared to Santos' 23 years.

Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned. 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.

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