Energy shares go berserk as oil price surges

Credit: drpepperscott

On a day where the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has risen an impressive 1.8%, the country’s energy producers are doing much of the heavy lifting with investors becoming increasingly confident the resource may have finally found a floor.

Brent crude oil is fetching US$34.86 at the time of writing, up 7.3% from roughly the same time yesterday, while US crude oil prices have also surged higher to US$31.24 a barrel.

Of course, BHP Billiton Limited (ASX: BHP) has been the big winner, its share price rising 5.9% to $16.92, adding billions of dollars back onto its market value. Investors had become very bearish on the Big Australian so shareholders will be relieved at the support now being shown for their shares.

Meanwhile, Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) – two of Australia’s other major energy producers – have risen 8.4% and 4.4%, respectively, while Liquefied Natural Gas Ltd (ASX: LNG), Sundance Energy Australia Ltd (ASX: SEA) and Origin Energy Ltd (ASX: ORG) have all gained between 6.9% and 13.5%.

The surge in the oil price came after a surprise decline in crude inventories, together with speculation that the world’s major oil producers could be close to an agreement to freeze their output. Low oil prices are crushing the margins of companies operating in the sector, while entire nations (such as Venezuela) are also struggling.

Although some analysts have expressed their confidence that oil prices may have finally found a floor, investors should remain patient before jumping into the sector with too much excitement. The outcome of any agreement is still uncertain, and there’s no certainty it would relieve prices significantly in the near-term even if it did go through.

Oil prices have been crushed over the last 18 months or so, and they will eventually find a floor. Of course, there is a chance they already have, but that’s a risk investors need to assess for themselves before buying shares in the sector. For what it’s worth, I’m not buying just yet.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget the energy producers. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

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. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.