Australia's best loved energy stocks could soon slump into a bear market as sentiment towards the sector is turning decidedly bearish.
The federal government's move to control the export of domestic gas supplies will add to investor angst at the move on a day when the West Texas Intermediate (WTI) crude price fell a further 2% to US$43.23 a barrel in the US overnight, which officially puts the commodity in a bear market as the WTI index is down more than 20% from its highest close this year.
But it's the Turnbull's government's attack on energy prices yesterday that will be dominating conversation. The government will be giving itself the power to direct gas produced in this country to the domestic market in an attempt to keep a lid on skyrocketing prices.
The decision was condemned by the energy sector with industry insiders warning that it will be shareholders that will ultimately pay the price.
Apart from Santos Ltd (ASX: STO), the other big name energy stocks like Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH) have been holding up reasonably well so far. That could change though as there doesn't seem to be any positive catalysts on the horizon that could draw fresh support to the sector.
Source: Google Finance
Also, many commodity forecasters do not think there's much room for the oil price to improve, besides the federal government's move to add gas to the list of restricted exports (diamonds and uranium are the only others on this list).
While the self-imposed production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and Russia seem to be holding, US shale oil producers have rushed back into the market to fill the gap left by OPEC and friends. This is evidenced by the increase in the number of drill rigs deployed in the US.
This isn't good news for mining giant BHP Billiton Limited (ASX: BHP) as it has an oil division, but at least the Big Australian is much better diversified than others.
What this means is that bargain hunting in the energy sector is only for the brave and the patient. A weak environment may spur merger and acquisitions, but as I have said before, one shouldn't make investment decisions on takeover appeal.
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