Why ASX oil stocks are on fire today

The energy sector is the best performing part of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after crude oil prices rallied overnight. Here'w what you need to know.

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ASX oil stocks are making big gains on the market this morning as the price of oil jumped to a six-month high in overnight trade.

The energy sector is the best performing part of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index and the gains are led by the Beach Energy Ltd (ASX: BPT) share price, the Santos Ltd (ASX: STO) share price and the Woodside Petroleum Limited (ASX: WPL) share price, which are rallying by over 1% or more at the time of writing.

The move by US President Donald Trump not to extend a waiver on the purchase of Iranian oil caught the market by surprise and sent the West Texas Intermediate (WTI) crude benchmark 2.7% higher to US$65.70 a barrel while the Brent benchmark added 0.4% to US$74.33 per barrel.

The Trump Stump

The US is threatening anyone who buys Iranian crude after May 1, 2019 with sanctions as Trump wants to bring the Iranian government to its knees.

Experts were counting on the US extending the waiver, which had been put in place in November last year to help buyers wean themselves off the Iranian export.

Trump had imposed sanctions on Iran after he unilaterally pulled out of a 2015 agreement between the Persian nation and six other world powers to restrict Iran's nuclear program.

The Trump administration tried to calm investors by saying it was working with large oil producers Saudi Arabia and the United Arab Emirates to ramp up supply of the commodity to make up for any shortfall.

Foolish takeaway

But reassurances aren't working – at least not in the short-term – for a few reasons. Saudi Arabia's energy minister didn't commit to ramping up production and only said he was monitoring the situation.

Further, the US didn't give the market enough time to make alternative arrangements as the deadline is a little more than a week away.

I suspect we will likely see the oil price hold on to gains (if not push higher) for a little while yet and that's good news for ASX oil producers and stocks like Worleyparsons Limited (ASX: WOR) who service the industry.

However, forecasting the medium to longer-term oil price is really nothing more than a guessing game Unlike most other commodities, such as iron ore or copper, oil is particularly prone to the whims of geo-politics.

It's far easier to make an intelligent guess when it comes to free markets, but there's seldom any intelligence or logic when it comes to politics.

Those sitting on a nice profit in the energy sector may consider taking a some profit off the table, in my view.

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Motley Fool contributor Brendon Lau owns shares of WorleyParsons Limited. 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.

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