Shares of BHP Billiton Limited (ASX: BHP) have continued to defy gravity today. They're up another 1.1% to $24.14 a share, and up 11.7% over the last six trading days.
The optimism surrounding BHP's shares today has come from a surge in the price of oil overnight. Brent oil rose 5.4% to US$51.92 a barrel while West Texas Intermediate (WTI) crude also rose strongly amid speculation that a fall in production could help ease the global supply glut.
Oil is BHP Billiton's second most important commodity, right behind iron ore. Both resources have come under enormous pricing pressure in recent years as a result of greater supplies hitting the market at a time where demand is falling, and many expected both to continue falling over the coming months, and even years.
Today however, investors are responding to more optimistic comments from the CEO of energy giant Shell, while Jim Ritterbusch of oil consultancy Ritterbusch & Associates in Chicago is also increasingly confident.
The Australian Financial Review quoted him as saying:
"We have reduced the probability of a return to the $US 37 – US$ 38 area per nearby WTI… We will maintain a longstanding view that price declines below this support level are virtually off the table."
Although the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has retreated marginally for the day, the energy sector is flying higher. Senex Energy Ltd (ASX: SXY) and AWE Limited (ASX: AWE) have risen 10.3% and 17.8% respectively, while Santos Ltd (ASX: STO), Liquefied Natural Gas Ltd (ASX: LNG) and Origin Energy Ltd (ASX: ORG) are up 8.3%, 5% and 7.1%.
While these reports are certainly encouraging for BHP Billiton shareholders, I wouldn't rush in to buy the miner's shares. BHP Billiton is still facing a number of headwinds which will be difficult to overcome, while there is no certainty that commodity prices will recover.
Until there are more definitive signs of a recovery, investors might be wise to remain on the sidelines and focus their attention elsewhere.
