Australia's energy stocks are on a tear today following another strong night for oil prices in what some analysts are beginning to think may be just the beginning of sustained price rises.
In what was the resource's fourth straight day of gains, Brent crude rose 0.8% to US$58.46 a barrel, while West Texas Intermediate (WTI) crude jumped nearly 2.7% to US$53.29 a barrel. While it had been feared that the resource could slip into the US$20s a barrel range due to the market's oversupply, some forecasts are now suggesting that oil could instead head towards US$70 a barrel by the end of the year.
The International Monetary Fund (IMF) expects low oil prices to continue spurring the global economy, while the closure of several hundred oil rigs across the US should also restrict production. In a new report, the US Energy Information Administration (EIA) said that output from the country's seven shale regions looked set to fall by up to 57,000 barrels per day in May.
The market's reaction has been positive today with big-name companies such as BHP Billiton Limited (ASX: BHP), Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) rising 1.7%, 1.1% and 1.6% respectively. Meanwhile, Senex Energy Ltd (ASX: SXY), Liquefied Natural Gas Ltd (ASX: LNG) and Origin Energy Ltd (ASX: ORG) are up 4.7%, 7.5% and 1.8% respectively.
Although there are certainly reasons to become more optimistic regarding the oil sector's outlook, investors shouldn't pin too much hope on a strong rebound in prices. To begin with, a decline of 57,000 barrels per day compares to the current oversupply estimate of 2 million barrels per day, so oil prices could just as easily slide further – a situation that many analysts still believe will eventuate.
As such, investors who choose to gain exposure to the energy sector are taking on a high level of risk in the hope of making a solid profit for their troubles. While that might suit investors with a high tolerance for risk, it wouldn't be wise for investors who take a more risk-averse approach to building their wealth.
A much safer way to profit from Australian resources
