If you haven't noticed the rising price of oil reflected on the ASX 200 through energy shares like Woodside Energy Group Ltd (ASX: WDS), chances are you have when you last filled up the car.
Yep, fortunately for energy investors and unfortunately for motorists and almost everybody else, global oil prices have spent the last month or so going through the roof.
It was only in late August that West Texas Intermediate (WTI) crude was going for under US$80 a barrel. Today, less than a month later, that same barrel is selling for just over US$90 a barrel. That's a rise of more than 12% in just a few weeks.
So given this rather extraordinary development in global energy markets, it's no surprise to see ASX energy shares like Woodside rocket in value accordingly.
Woodside shares are up a healthy 2.13% since the start of the month, and up 22% over the past six months alone. And that's including the sizeable drop in share price we saw on 31 August when Woodside traded ex-dividend for its generous final dividend for 2023.
Thus, many investors are probably watching the rising price of oil and want to get in on the action. So let's discuss whether it's too late to buy Woodside shares.
I think Woodside is probably the best oil share on the ASX. It has significant size and scale, thanks to its acquisition of the petroleum assets of BHP Group Ltd (ASX: BHP) back in 2021. These are desirable attributes to look for in my view when searching for the best resources or energy stocks.
Is it too late to buy Woodside shares?
However, I wouldn't be buying Woodside shares today. And I would even go further and say that if I had some, I would even consider selling them.
Resources and energy shares all share the same fundamental flaw in my eyes. Their fortunes are entirely dependent on the price they can sell their commodities for. Many companies, whether they be Woolworths Group Ltd (ASX: WOW), Telstra Group Ltd (ASX: TLS) or Apple, have full discretion over their pricing.
This enables these companies to consistently raise their earnings above inflation over time and allows their investors to compound wealth at relatively consistent rates. That is not the case for resources or energy shares.
Over very long periods of time, you will notice the share prices of these companies tend to act more like a sine wave than the ideal staircase. Check out Woodside's own share price below if you want proof:
Because of this peculiarity, it makes it hard for investors to just buy and hold energy shares like Woodside and expect steady returns. The best way to make money in these kinds of companies is to buy them when there is a downturn in the commodity cycle in question.
For example, it would have been a great time to buy Woodside shares back in August 2021, when the global oil price was highly depressed. Woodside shares were going for around $20 each at the time.
But today, I see little point in getting in on Woodside when oil prices are already high and the company's approaching $40 a share. That leaves very little possible upside in my view, but plenty of potential downside if oil comes off the boil.
Foolish takeaway
The scenario is not exactly a recipe for building wealth. So I'm staying away from Woodside shares today, and will probably continue to do so for the foreseeable future. If oil gets back down to historically low levels, it might be worth taking another look at Woodside shares. But until then, it's a no from me.
