ASX energy shares on watch after oil prices surge higher

Oil Search Ltd (ASX:OSH) and Santos Ltd (ASX:STO) shares could surge higher today after oil prices jumped 5% overnight…

| More on:

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

It looks set to be a great day of trade for Australian energy producers such as Beach Energy Ltd (ASX: BPT), Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) after oil prices surged higher overnight.

This follows the release of a surprise announcement by the world's second largest oil producer, Saudi Arabia.

What happened?

Oil prices surged higher overnight after Saudi Arabia unexpectedly announced that it would cut its production by approximately 1 million barrels a day.

According to Bloomberg, the WTI crude oil price is up 5.1% to US$50.06 a barrel and the Brent crude oil price has stormed 5.1% higher to US$53.70 a barrel. This is the first time that the WTI crude oil price has been above US$50 a barrel since February 2020.

On Tuesday, OPEC and its oil-producing allies, known as OPEC+, agreed to hold their output largely steady in February. Just Russia and Kazakhstan revealed plans to add a combined 75,000 barrels per day to the market in both February and March.

However, according to CNBC, after the meeting, Saudi Arabia held a press conference and announced its surprise production cut for February and March.

Again Capital's John Kilduff believes that lockdowns may have spooked OPEC and Saudi Arabia, leading to this action.

He said: "WTI oil prices have climbed above $50, for a time, today, on an increasingly likely surprise move by OPEC+ to cut production next month, rather than raising it. The renewed lockdowns in the U.K. Europe has spooked the group."

Though, not everyone is seeing this production cut news as a positive. CIBC Private Wealth's senior energy trader, Rebecca Babin, suspects that Saudi Arabia stepped in after failing to get an agreement with the rest of OPEC+. She fears this unwillingness to work together may ultimately be seen as a negative and cause oil prices to pullback.

Babin told CNBC: "I view this type of an 'agreement' as an indication that it is getting harder to get OPEC+ members in line and keep production constrained while demand looks threatened by ongoing lockdowns and slow vaccination roll out. WTI traded briefly above $50 following the headlines, but I suspect a more negative interpretation of today's meeting may cause crude to fail at $50."

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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Young man with a laptop in hand watching stocks and trends on a digital chart.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Broker Notes

Why DroneShield, Nickel Industries, and CSL shares could be best buys

Let's see why Bell Potter is so bullish on these shares.

Read more »

A group of executives sit in front of computer screens in a darkened room while a colleague stands giving a presentation with a share price graphic lit up on the wall
Opinions

2 ASX 200 large-cap shares that this fundie is cashing in after phenomenal growth

Shaw and Partners portfolio manager James Gerrish says he knows this will be an 'unpopular call'.

Read more »

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's what Westpac says the RBA will do with interest rates next week

Are interest rates heading lower again? Let's find out what the banking giant is predicting.

Read more »

A handsome smiling man sits in the front seat of an electric vehicle with his hands on the wheel feeling pleased that the Carsales share price is going up and the company will shortly pay its biggest dividend ever
Share Market News

Are electric vehicle stocks a good investment today?

Did US President Trump just kill the EV industry?

Read more »

Hands reaching high for a trophy with a sunset in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a cracking end to the trading week for ASX investors.

Read more »

Two brokers analysing stocks.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman and man calculating a dividend yield.
Opinions

Buy or bail? Fundie's verdict on 2 ASX 300 shares

Stuart Bromley of Medallion Financial Group provides his insights.

Read more »