After falls were experienced across the oil sector on Monday in the wake of OPEC's failure to agree to production cuts, oil shares have rebounded on Tuesday.
The gains on the ASX come after US energy stocks bucked the trend overnight, with investors apparently unperturbed by the failure of OPEC to reach an agreement.
The sentiment has been echoed by local analysts with the Australian Financial Review (AFR) reporting the views of a number of market watchers that any oil sell-off is likely to be temporary with a floor appearing to have been established.
Amongst the top energy sector movers at lunchtime on Tuesday were:
- Origin Energy Ltd (ASX: ORG) up 6.2%
- Oil Search Limited (ASX: OSH) up 4.8%
- Woodside Petroleum Limited (ASX: WPL) up 3.6%
- Santos Ltd (ASX: STO) up 3.6%
- Beach Energy Ltd (ASX: BPT) up 2.3%
Compelling upside potential
While most energy shares have bounced significantly off their recent lows, they remain a long way from their 52-week highs.
The oil market is notoriously cyclical and the fact that global markets appear to have taken the OPEC meeting in their stride is a sign of emerging confidence across the sector that the cyclical low has been reached.
As one analyst in the AFR's article noted, the severe price decline in oil has been caused by a relatively small supply-demand imbalance. In theory at least, it would arguably only take a small decline in supply or small increase in demand to potentially create a sharp rise in the oil price from these levels.
