A rampaging oil price provided plenty of delight last week, but that excitement has quickly died down with the commodity once again on the slide.
While a surge of more than 20% in the space of four days had given investors hope of a potentially enormous rebound in price – with Brent oil trading just below US$59 mid-last week – that hope now appears to be fading quickly with the commodity down more than 6% over the last two days. It dropped 3.1% overnight to be fetching just US$54.70 a barrel, with further falls expected.
The latest drop came ahead of the release of US government data which is expected to reveal record-high stockpiles of the resource, despite the closure of several hundred oil rigs over the last few months. As highlighted by the Fairfax press, Citibank believes the short-term drivers for the oil price are bearish whereby the price could fall to US$40 or even around US$20 a barrel range before bottoming out.
Although it might be tempting to take a punt on an energy producer such as Senex Energy Ltd (ASX: SXY), Santos Ltd (ASX: STO) or even Oil Search Limited (ASX: OSH) in the hope of a significant turnaround in price, it remains a very risky bet. Thus, investors wanting to limit their portfolio's level of risk would be wise to look elsewhere for safer and more compelling opportunities.