On a day where the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has risen an impressive 1.8%, the country's energy producers are doing much of the heavy lifting with investors becoming increasingly confident the resource may have finally found a floor.
Brent crude oil is fetching US$34.86 at the time of writing, up 7.3% from roughly the same time yesterday, while US crude oil prices have also surged higher to US$31.24 a barrel.
Of course, BHP Billiton Limited (ASX: BHP) has been the big winner, its share price rising 5.9% to $16.92, adding billions of dollars back onto its market value. Investors had become very bearish on the Big Australian so shareholders will be relieved at the support now being shown for their shares.
Meanwhile, Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) – two of Australia's other major energy producers – have risen 8.4% and 4.4%, respectively, while Liquefied Natural Gas Ltd (ASX: LNG), Sundance Energy Australia Ltd (ASX: SEA) and Origin Energy Ltd (ASX: ORG) have all gained between 6.9% and 13.5%.
The surge in the oil price came after a surprise decline in crude inventories, together with speculation that the world's major oil producers could be close to an agreement to freeze their output. Low oil prices are crushing the margins of companies operating in the sector, while entire nations (such as Venezuela) are also struggling.
Although some analysts have expressed their confidence that oil prices may have finally found a floor, investors should remain patient before jumping into the sector with too much excitement. The outcome of any agreement is still uncertain, and there's no certainty it would relieve prices significantly in the near-term even if it did go through.
Oil prices have been crushed over the last 18 months or so, and they will eventually find a floor. Of course, there is a chance they already have, but that's a risk investors need to assess for themselves before buying shares in the sector. For what it's worth, I'm not buying just yet.
