Oil prices crash lower

The shares of BHP Billiton Limited (ASX:BHP), Oil Search Limited (ASX:OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX:WPL) could come under pressure today after oil prices crashed lower…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's leading energy producers including Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) are likely to see their shares sink lower on Thursday after oil prices crashed overnight.

According to Bloomberg, the WTI crude oil price sank 4.4% to US$70.88 a barrel and Brent crude oil dropped 6% to US$74.30 a barrel.

Why are oil prices crashing?

Oil prices came under heavy selling pressure after Saudi Arabia increased its oil output in June to the highest level seen in over 18 months.

Saudi Arabia increased production by a massive 400,000 barrels per day in June as it sought to cool the market following a surge in oil prices that led to three-and-a-half-year highs being reached recently. Prices had been on a tear after production dropped from some members of OPEC.

In addition to this, there are concerns that the escalating U.S.-China trade war could threaten economic growth.

On Wednesday the United States Trade Representative advised that the Trump administration has stated its intention to place 10% tariffs on an extra US$200 billion worth of Chinese imports. The White House made the announcement after the Chinese government retaliated to last week's US$34 billion trade tariff.

How severe will the declines be?

Over in London the UK-listed shares of BHP Billiton Limited (ASX: BHP) fell 3% overnight as investors hit the sell button in a panic.

And in the United States the energy sector fell 2.4%, erasing much of its recent gains.

Should you buy the dip?

While I think any sizeable decline in the BHP Billiton share price could be a buying opportunity, I wouldn't be in a rush to buy any pureplay oil producers.

Prior to today I felt many of the leading energy producers' shares had been priced as though oil prices were going to remain at these lofty levels for some time to come. But with weakness being shown in prices now, the energy producers could face a reality check.

In light of this, I would suggest investors look elsewhere for investment opportunities at this stage.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

a tired and sad looking bulldog sits at an office desk with a pen an paper on it and a cup of coffee with his head resting on the desk as he gives a mournful look to the camera.
Resources Shares

After crashing 50%, could this ASX All Ords stock rebound?

Such low starting valuations could help.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

Why did the Fortescue share price fall 7% in October?

Let's review what happened with the ASX 200 mining giant in October.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Resources Shares

Why did the BHP share price get hammered in October?

ASX 200 investors sent BHP shares sharply lower in October. But why?

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Resources Shares

Gina Rinehart's empire raked in another $5.6 billion. Here's how

Resources and mining continue to dominate the Australian market.

Read more »

two men in business suits sit across from each other at a table with a chess board on it. Both hold their hands to their chins and look down in serious contemplation of their next move.
Resources Shares

'Not ruled out': Could BHP still buy Anglo-American?

This mega-deal might not be as dead as it looks.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

Mineral Resources share price rockets 16% on $1.1 billion news!

ASX 200 investors appear thrilled with Mineral Resources' latest news.

Read more »

Miner looking at a tablet.
Resources Shares

Here are the latest share price forecasts for Fortescue

Let’s unearth what analysts think could happen with this iron ore miner.

Read more »

A businesswoman ponders why her boat is sinking in the ocean.
Resources Shares

Lake Resources share price sinks on quarterly cash flow news

Let's take a look at the highlights of the company's Q3 update.

Read more »