Oil prices took another turn overnight, almost wiping out the solid gains achieved in the prior session.
Brent crude slipped 3.9% for the session to US$48.54 a barrel, while US crude oil fell 3.3% to US$46.30 a barrel. Notably, both benchmarks were trading at more than US$100 a barrel in June 2014.
Indeed, oil prices have been under tremendous pressure over the last year or so as a result of diminishing global demand, combined with surging supplies. The US Energy Information Administration, or EIA, reported that crude stockpiles grew by 2.8 million barrels last week, which compared to analyst expectations of 2.5 million barrels.
As highlighted by the Wall Street Journal, the EIA also estimated crude-oil production rose by 48,000 barrels a day last week, further adding to the supply glut.
A surging US greenback is also behind last night's heavy fall. The US dollar rallied overnight to its highest in three months against the euro following a strong jobs report which strengthens the Federal Reserve's case to hike interest rates in December. As the resource is priced in US dollars, a stronger US currency makes it more expensive for foreign customers to purchase, thus forcing the price lower.
Investors in Australia's energy and gas sector didn't respond kindly to the news, selling most stocks lower early in the session.
Sundance Energy Australia Ltd (ASX: SEA) and Origin Energy Ltd (ASX: ORG) slipped 2.5% and 1.8% respectively while BHP Billiton Limited (ASX: BHP) and Liquefied Natural Gas Ltd (ASX: LNG) were down 1.3% and 3.9%. Santos Ltd (ASX: STO) bucked the trend, trading flat at $5.99.
Although a number of companies in the sector are trading at what may seem like tempting prices, investors still need to be very careful before buying their shares. A number of economists still expect oil prices to fall further (some say considerably further), which could put those producers in an even more precarious position than they are in today.
I'm not a buyer just yet, and think there are plenty of other great companies to look at instead.
