More blood has been spilled on the Australian stock market today after oil prices slid further overnight whereby Brent oil dropped almost 4% to hit US$66.38 a barrel. West Texas Intermediate, which is the main US futures contract, also finds itself trading at a fresh five-year low after diving US$2.79 to US$63.05 a barrel.
As a result, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen 1.5% to once again be trading below the 5300 level, led south by companies such as BHP Billiton Limited (ASX: BHP), down 3.5%; Sundance Energy Australia Ltd (ASX: SEA), down 12%; and Senex Energy Ltd (ASX: SXY) down 15.5%. Meanwhile, Santos Ltd (ASX: STO) has also tumbled 7.2%, which is partially the result of a credit rating cut.
While world oil prices have been on a steady decline since June this year, they have been hammered especially hard in recent weeks following the OPEC meeting. Despite a massively oversupplied market, OPEC, which controls roughly one third of the world's production and is essentially a cartel-like organisation, decided not to curtail production limits which added further pressure to the resource's price.
While it is already sitting at a five-year low, some analysts have suggested it will fall as low as US$40 a barrel, indicating a further 40% downside from today's price.
Should you buy?
As is the case with any resource company, the oil producers' revenues and margins are almost entirely dependent on the commodity's price, so investors are clearly concerned about the impact recent events will have on the producers' profits.
While there is certainly the temptation to act on these lower prices by buying down-and-out stocks, investors may want to hold off from pulling the trigger for a little while longer – perhaps settling for an addition to the watchlist for now instead.
