Oil prices rose more than 1% overnight thanks, in large part, to a weaker US dollar which outweighed global supply pressures. As reported by Reuters, US crude rose 1.9% to US$47.45 a barrel while Brent crude jumped 1% to US$55.92 a barrel.
The resource got a significant boost after the US dollar weakened against most of its major peers as the Federal Reserve's vice chairman, Stanley Fischer, said there would not be a "smooth upward path" for interest rates. Indeed, the Australian dollar rose to a new four-week high of 79 US cents after having recently traded as low as 75.61 US cents. Given that oil is traded in US dollars, a weaker currency makes it more affordable to foreign buyers.
In saying that, the global supply glut is still weighing on the resource's price. Saudi Arabia's Oil Minister, Ali al-Naimi, recently stated that his country has increased production to nearly 10 million barrels a day in an effort to maintain market share, despite falling prices. With US crude inventories also sitting near a multi-decade high, an increase in global production threatens to push oil prices significantly lower than their current level. As it stands, the resource has lost roughly 50% of its value since last June.
While the reaction of Australia's energy producers in light of the resource's climb overnight has been mostly positive, there are still a few which are trading in the red, possibly highlighting the market's belief that higher oil prices cannot be sustained. Here's an overview of how they're performing:
- Senex Energy Ltd (ASX: SXY) rose 4.9%
- Origin Energy Ltd (ASX: ORG) rose 1.1%
- Santos Ltd (ASX: STO) rose 0.8%
- BHP Billiton Limited (ASX: BHP) rose 1.1%
- Woodside Petroleum Limited (ASX: WPL) fell 0.2%
- AWE Limited (ASX: AWE) fell 1.2%
- Liquefied Natural Gas Ltd (ASX: LNG) fell 2.2%
Given the uncertainty surrounding the oil price, investors would be wise to continue avoiding Australia's energy sector until the high level of volatility begins to subside.
