Oil rally sends ASX energy shares rocketing today

Santos Ltd (ASX:STO), Woodside Petroleum Limited (ASX:WPL) and Oil Search Limited (ASX:OSH) are all up on the ASX today.

| More on:
a woman

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

Brent crude futures lifted above the psychologically important US$40 per barrel level on Thursday morning as traders bet the supply side may be squeezed into a production freeze at an upcoming OPEC meeting in Doha on April 17.

The share prices of energy majors Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH) are all up between 1.2% and 5.5% today in some welcome relief for long-suffering investors.

Whether OPEC can agree on anything material in Doha such as production limits or freezes is anyone's guess, with the likes of Saudi Arabia, Russia and Venezuela reportedly to be joined by Iran in a politically volatile mix.

Investors in ASX energy shares  also need to consider whether the physical market fundamentals for energy prices justify holding energy stocks with the supply and demand imbalance in oil markets not expected to change until 2018.

Due to its large amount of debt, Santos is probably the most high risk / high reward energy play among the large caps.

It was forced to raise about $3.5 billion in capital in late 2015 via asset sales and a $2.5 billion capital raising. As a result the business had $4.8 billion in cash and undrawn debt facilities at the end of 2015.

This provides a substantial capital buffer to ride out lower oil prices, but will they recover on a sustainable basis?

Santos still has $6.5 billion in net debt to service largely as a result of huge capital expenditures on its Gladstone LNG project and it remains a high-risk prospect even after losing half of its value over the course of the past year.

In my opinion investors looking to bet on a recovery in oil prices would be better off focusing on those with the strongest balance sheets such as Woodside or Oil Search.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »