Australia's energy and gas stocks are gushing higher today after oil prices rose strongly overnight, sparked by a weaker US dollar and expectations of a sixth straight weekly decline in US crude oil supplies.
West Texas Intermediate crude, which is the U.S. benchmark, rose 3.4% to trade at US$60.14 a barrel while Brent crude, which is the global benchmark, rose 3.5% to US$64.88 a barrel.
The gains came after the Energy Information Administration (EIA) said it expects daily oil production in the seven major shale regions to fall by 91,000 barrels to 5.5 million barrels in July. Meanwhile, given that oil is quoted in terms of US dollars, a weaker US dollar also supported international demand for the resource.
The markets will now wait for the EIA to deliver the latest weekly inventory data tonight which is expected to show another decline in US crude supplies which should provide further relief for the massive supply and demand imbalance that has plagued oil prices over the last 12 months.
Oil Search Limited (ASX: OSH) has been one of the top-performing stocks from the sector as a result of last night's surge in prices with the stock up 3.2% around midday. Woodside Petroleum Limited (ASX: WPL) also rose nearly 2% while Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) were up 1% and 0.9% respectively.
Indeed, share prices of energy and gas producers can react very nicely to positive movements in the resource's price, but can be punished even harder when oil prices fall. While investors could look to put a small amount of capital to work in the sector, they should always remain mindful of the risks in doing so and ensure they maintain a diversified portfolio at all times.
