The Beach Energy Ltd (ASX: BPT) share price has cooled off from the 52-week highs it hit in mid-April and is now trading around the $2 mark at the time of writing (a pullback of about 10%). Despite this retreat, Beach shares are still up over 55% since New Year's Day, so is it a good time to consider buying in?
A refresher on Beach
Founded in 1961 and formerly known as Beach Petroleum, Beach Energy is an oil and gas exploration and production company based in Adelaide, South Australia. Beach is Australia's second largest oil producer and supplies roughly 15% of the east coast's gas demand. This hails from its interests in five oil and gas producing basins across Australia and New Zealand, including its mainstay Cooper Basin in South Australia.
Why the Beach share price has cooled
The rally in the Beach share price since the start of the year is highly correlated with the price of crude oil rising strongly over the same period. The cost of a barrel of Brent crude has risen from around US$50 per barrel in late December and peaked at nearly US$74 in mid-April (see the connection yet?). Since that time, the Brent price has pulled back to around US$70.
Since this is a relatively small decrease (5.5%), it may suggest the market is assuming a further decline in oil prices over at least the short term. Other ASX oil-producing companies such as Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) have experienced similar moves in share price, which, in my opinion, provides further evidence this suggestion. I feel this assumption would be a little premature, considering what we have been seeing in Venezuela recently. The country has the highest reserves of crude oil in the world and it looks as though the country will be in a state of civil unrest for the foreseeable future. Together with the US sanctions on the current government, I would have expected this to create upward pressure on the oil price over the near-term.
Foolish Takeaway
Although I think Beach is a fantastic company, I would still wait for a sustained drop in the oil price if you don't already own shares. Beach's cost per barrel of oil equivalent is around $9.40, so the company could remain profitable even if the oil price fell off a cliff. Personally, I would love to own Beach shares, but I'll wait for the said cliff before opening a position.
