Australia's energy stocks are rallying higher today after US oil surged to a new 2015 high overnight.
As reported by The Australian, West Texas Intermediate (WTI) crude (the US benchmark) rose 3.5% to finish the session at US$53.98 a barrel, which was its highest close since December 30 at US$54.12. Meanwhile, Brent crude, which is the global benchmark, settled 1.7% higher at US$59.10 a barrel.
Both contracts had come under pressure recently as a result of a pending nuclear deal between Iran and a number of countries (including the US). If a deal is reached Iran could release 30 million barrels of oil into an already flooded market which may force the resource's price considerably lower.
However, markets are now revising those fears and are becoming more confident that Iran will release its crude supplies slower than anticipated, relieving some of the immediate pressure on prices.
At the same time, there are signs that suggest US oil production could finally be slowing down following the closure of several hundred oil rigs in recent months. While US crude inventories having risen to an 80-year high recently, US crude production is tipped to slow for the second week in a row which will provide further comfort for the market.
With the exception of Liquefied Natural Gas Ltd (ASX: LNG) (which has dropped 2.2%), Australia's other energy stocks are rallying as a result of the jumping oil price. Woodside Petroleum Limited (ASX: WPL) and BHP Billiton Limited (ASX: BHP) have risen 2.2% and 0.8% respectively, while Santos Ltd (ASX: STO), Oil Search Limited (ASX: OSH) and Sundance Energy Australia Ltd (ASX: SEA) have climbed 3.8%, 4.7% and 3.1% respectively.
Should you buy?
With oil prices once again on the rise, some investors will wonder whether now is the time to buy the energy producers in the hope of catching a sharp rebound. While any of the stocks in the sector could generate enormous returns if a recovery in the oil price does eventuate, it's important to realise that many analysts still believe prices will fall considerably before the end of the year.
As such, investors who buy today could be committing themselves to a rollercoaster ride in the coming months which could just as easily result in heavy losses. Needless to say, the energy sector is no place for more risk-averse investors.
