Australia's energy and gas stocks are doing a lot of the market's heavy lifting today after oil prices extended their gains overnight to be trading near their highest level this year.
While the weakening U.S. dollar has played a key role in pushing the resource's price higher in recent weeks, the latest gain came after the U.S Energy Information Administration (EIA) lowered its 2015 and 2016 crude production growth forecasts.
The EIA now expects 530,000 barrels per day (bpd) in 2015, down from a previous estimate of 550,000, while it also believes U.S. oil demand growth could hit 340,000 bpd, compared to a previous estimate of 330,000.
Brent crude, which is the global benchmark, rose 3.5% following the announcement to be trading above US$67 a barrel, while West Texas Intermediate crude, which is the U.S. benchmark, rose above US$62 a barrel.
Here's how some of Australia's biggest energy stocks are responding:
- Woodside Petroleum Limited (ASX: WPL) up 0.5%
- Santos Ltd (ASX: STO) up 0.7%
- Senex Energy Ltd (ASX: SXY) up 2.5%
- Origin Energy Ltd (ASX: ORG) up 1.8%
- Sundance Energy Australia Ltd (ASX: SEA) up 7.6%
While there are certainly some encouraging signs for the sector, investors still need to remain wary.
Oil prices have rebounded strongly from their lows earlier in the year but some analysts, including those at Goldman Sachs, believe the resurgence could prove only temporary. As reported by CNBC, Goldman Sachs believes that the resource still boasts "weak fundamentals", while a drop in U.S. production should be counteracted by a rise in supply from regions such as Saudi Arabia, Iraq and Russia.
At the same time, although hundreds of U.S. oil rigs have closed down in recent months, many of those could be reopened if oil remains at these price levels. Should oil prices resume their decline, investors can expect heavy falls from stocks within the energy sector.
