If you own shares in Santos Ltd (ASX: STO), Beach Energy Ltd (ASX: BPT) or any of the other ASX-listed oil producers, look away now.
The price of Brent Crude oil plunged 4.2% on Saturday (Australia time), falling US$2.41 per barrel and hitting a six-week low to close at just $54 per barrel. The fall comes after a recent period of recovery in the oil price which had started to give investors hope the worst may be over.
Above: the recent recovery in oil prices has not been able to hold. Source: NASDAQ.com
Why did the oil price fall?
The oil price fell in response to a monthly report issued by Paris-based International Energy Agency (IEA) which stated global oil supplies grew by 1.3 million barrels of oil per day in February and that oil supply is still exceeding demand.
The IEA raised further alarm by reporting that rising U.S. crude oil stocks may start to reach capacity, meaning surplus production will need to be sold which would "inevitably lead to renewed price weakness".
What will it mean for Santos Ltd?
The plunge in oil price will make for a negative start to the week for shares in Santos and other listed energy stocks because the of the impact to short term company earnings, while the report's bearish outlook will eat away any optimism investors had for a recovery in oil prices.
In the U.S, shares in most of the major oil producers sunk in response to the oil price fall, with shares in Royal Dutch Shell plc, one of the worst hit closing down 2.39%.
The fall will weigh especially heavily on Santos, which earned around 46.5% of sales revenue from oil in 2014, compared to just 16% for Woodside Petroleum Limited (ASX: WPL).
Before hitting the 'sell' button however, it's important to remember that Santos is expecting significant growth in LNG production over the next few years as the Queensland-based GLNG project comes online later this year. In addition, although the outlook for oil prices is weak, the long-term prospects for LNG could be heating up.
