Shares of Santos Ltd (ASX: STO) have been hammered today following another violent decline in oil prices overnight. The energy producer’s shares have fallen 6.5%, which compares to a 0.1% rise for the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
As highlighted by The Australian Financial Review, Morgan Stanley believes that crude oil prices could plunge as low as US$20 a barrel, partially due to the depreciation of the Chinese yuan and the rapid appreciation of the US dollar. Brent crude, which is the global benchmark, plunged 6.7% overnight to just US$31.31 a barrel, a near 12-year low, while US Crude oil prices fell more than 5% to around the same level.
The catalyst for the overnight falls appears to be further concerns regarding China’s economic growth prospects, exacerbated by further falls in the country’s share markets.
Indeed, falling oil prices have had a major effect on Santos’ share price over the last 16 months or so. While the shares traded for roughly $13.30 in September 2014, they have since lost more than $10 per share or 77% to trade at just $3.00 today. It’s the lowest they’ve traded at since June 1995.
Of course, Santos isn’t the only company that has been impacted. The share prices of Woodside Petroleum Limited (ASX: WPL), BHP Billiton Limited (ASX: BHP) and Oil Search Limited (ASX: OSH) have also been hammered over the last year, with all three down between 1.9% and 2.3% today.
Although Santos’ shares are trading at their lowest price in more than two decades, there is every chance they could fall even further from here. If oil production continues to outpace demand for the resource, prices could fall further putting companies like Santos under even greater strain. As such, investors might be wise to give the sector a wide berth, for now at least.
Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
- Coronavirus (COVID-19): 6 charts every Australian needs to see – April 6, 2020 1:46pm
- Innovation through crisis – April 2, 2020 11:48am
- Coronavirus (Covid-19): Why Is Italy’s Fatality Rate So Bad? – March 26, 2020 3:39pm