It looks set to be another disappointing day of trade for Australia's leading energy producers after oil prices crashed lower overnight.
Beach Energy Ltd (ASX: BPT) shares, Oil Search Limited (ASX: OSH) shares, and Santos Ltd (ASX: STO) shares are all likely to trade lower after oil prices sank to 15-month lows.
According to Bloomberg, the WTI crude oil price has fallen almost 8% to US$45.95 a barrel and the Brent crude oil price is down 6% to US$56.04 a barrel.
Why are oil prices crashing lower?
Oil prices have fallen heavily this week after CNBC reported that inventories at the storage hub of Cushing, Oklahoma rose by more than 1 million barrels between December 11 and December 14.
Supply levels at this particular hub are watched closely by traders and market participants because it is the delivery point for the futures contract and underpins nearly all other regional crude grades.
In addition to this, overnight Reuters reported that Russia has been pumping oil out at 11.42 million barrels per day this month, which is a level that would mark an all-time high if confirmed.
Russia recently agreed with OPEC to cut its production in January but appears to be pumping out as much as it can ahead of the output cuts.
Another potential driver for the oil price crash according to Bloomberg were comments out of Chinese President Xi Jinping. In a key speech in Beijing on Tuesday the Chinese leader appeared to push back against U.S. President Donald Trump, heightening trade war and economic growth concerns.
Should you buy the dip?
Given how President Trump wants oil prices to remain low and U.S. shale oil producers are firing on all cylinders, I'm not overly bullish on oil prices in 2019.
In light of this, I plan to stay away from Beach, Cooper Energy Ltd (ASX: COE), Oil Search, Santos, and Woodside Petroleum Limited (ASX: WPL) until the outlook improves.
Until then, I would suggest investors focus on companies that stand to benefit from lower oil prices like Caltex Australia Limited (ASX: CTX) and Qantas Airways Limited (ASX: QAN).
