The price of Brent Crude oil plunged 5% overnight after a surge last week, which erased most of last week's gains and is likely to hit ASX-listed oil and gas producers hard today.
Santos Ltd (ASX: STO) is likely to bear the biggest falls as a result of that company's high debt load and the uncertainty around a potential capital raising or asset sale. Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH) are less likely to be affected thanks to comparatively high investor optimism and a better financial situation compared to Santos.
Origin Energy Ltd (ASX: ORG) is also likely to be relatively unaffected as that company recently took steps to shore up its balance sheet, and currently looks like a buy according to one Foolish writer.
While I wrote yesterday that there were faint signs that the oil market could be stabilising, last night's falls underline the volatility that still afflicts the sector. In particular, profit-taking from traders and a surge in output from oil cartel OPEC were blamed as the cause for the fall. OPEC reported that its drilling output rose by 110,000 barrels last month (up 0.3%), and its production is now some 2 million barrels higher than the level of demand forecast for its product this year.
This is another clear sign that the cartel of nations is intent on retaking its market share by pushing out high-cost producers elsewhere in the globe, and should serve as a warning to investors thinking of diving into local oil producers.
