So far this morning it is looking like another day of gains for Australian energy shares such as Santos Ltd (ASX: STO) and Beach Energy Ltd (ASX: BPT).
At the time of writing the Santos share price is up 2.5% to $4.70 and the Beach Energy share price is 4% higher at $1.13.
Elsewhere, the shares of Woodside Petroleum Limited (ASX: WPL) and BHP Billiton Limited (ASX: BHP) have also made notable gains today.
Why are energy shares higher?
Overnight oil prices surged to their highest levels in over two years after Saudi Crown Prince Mohammad bin Salman cracked down on corruption with the arrest of several princes and ministers in the Kingdom.
At one stage the benchmark Brent crude oil price reached US$64 a barrel and U.S. WTI crude oil rose above US$57 a barrel. While prices have now dropped back a touch, both Brent and WTI oil finished the day 3% higher.
Will oil prices continue to climb?
According to CNBC, Roberto Friedlander believes it is more likely that oil prices will rise towards the US$70 a barrel level than fall back to US$50 a barrel.
The head of energy trading at Seaport Global Securities believes that the events that have unfolded in Saudi Arabia are part of a plan to consolidate power and reshape the economy. To be successful in this plan the Crown Prince will need to keep oil prices near current levels.
Furthermore, I feel signs of stronger demand and declining inventories are also likely to help at least maintain current prices.
How can you profit?
My preferred pick in the energy sector remains Santos. As I mentioned yesterday, I think the prospect of high levels of free cash flow generation makes it a great option for investors despite its strong share price gain in the last few months.
