Why the oil price tanked overnight

Before today, the oil price appeared to have stabilised.

| 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

Oil prices were hammered again overnight and are once again acting as a drag on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today.

Oil prices fell earlier in the week as well, before mostly recovering. Brent oil, which is the global benchmark, was fetching roughly US$49 a barrel again yesterday afternoon, but plunged around 5% again overnight. The resource is now trading for just US$46.49 a barrel, with West Texas Intermediate (WTI) crude worth slightly less at US$45.26 a barrel.

Indeed, concerns related to global growth prospects in the aftermath of Britain's 'Brexit' vote have impacted oil prices over the last fortnight, but last night's fall is believed to have been caused by a report from the US government.

According to The Australian Financial Review, the report showed that US stockpiles of the resource were mostly within analysts' forecasts, falling 2.2 million barrels for the week. However, market bulls may have been hoping for even larger declines to bring the market back towards equilibrium.

Meanwhile, it's also worth noting that summertime in the United States typically results in a peak in demand for gasoline as people go on holiday. That hasn't happened this year, according to The Wall Street Journal, because refineries have already been running hard for months producing gasoline, so there is plenty of supply which has kept the level above average for this time of year.

Shares of BHP Billiton Limited (ASX: BHP) have come under pressure as a result of the fall, losing 2%. Liquefied Natural Gas Ltd (ASX: LNG) has also lost 2%, while Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) have shed 2.6% and 2.8%, respectively.

Despite a couple of jolts this week, oil prices do appear to have stabilised in recent months which will give investors in the sector some confidence. Before considering buying into the energy producers, however, it is important that investors do their due diligence on the strength of the miners themselves.

After all, the oil price is still significantly below its levels from 2014 which mightn't bode too well for some of the more highly leveraged producers, while there is also no guarantee that oil prices will be sustained around these levels.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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 »