It looks set to be another tough day of trade for Australian energy shares such as Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).
Oil prices crashed lower again overnight after fears of an impending supply glut returned.
According to Bloomberg, this led to the WTI crude oil price falling 6.9% to US$53.24 a barrel and the Brent crude oil price tumbling 6.7% to US$62.30 a barrel. This was the lowest level for U.S. crude oil since October 2017.
What caused the selloff?
Concerns that supply will outstrip demand next year have weighed heavily on prices and sent them crashing into a bear market.
And while many are now expecting OPEC, Russia, and several other producers to launch a fresh round of output cuts to prevent a global supply glut, traders don't appear to believe this will be enough.
In addition to this, with President Trump asking Saudi Arabia and OPEC to not cut production, some are betting that output cuts may be limited.
Helima Croft, RBC's global head of commodity strategy, told CNBC that: "I think there is a corner of the market that says, 'Well wait a second, is Saudi Arabia really going to go forward with removing so many barrels in a situation where President Trump remains a stalwart ally of the Saudi government?"
What now?
While I still see value in BHP Billiton Limited (ASX: BHP) shares due to its diversified operations, I would suggest investors stay clear of pure-play energy producers like Cooper Energy Ltd (ASX: COE) and Oil Search Limited (ASX: OSH) until there are notable improvements in pricing and demand.
Until then I suspect investor sentiment in the industry will remain negative, putting significant pressure on the prices of Australia's leading energy shares.
