Is it time to buy shares of BHP Billiton Limited?

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Shares of BHP Billiton Limited (ASX: BHP) are bouncing again today, rising 2.8% to $16 a share compared to yesterday’s closing price of $15.57.

There are three reasons why the miner’s share price might be rising today.

The first relates to news that Standard & Poor’s has affirmed its “A” rating on BHP Billiton’s debt, meaning that BHP’s reduction in dividends was enough to appease the credit agency for now.

While that was expected to be the case, the gains being experienced by BHP’s shares today can also likely be attributed to the prices of iron ore and oil, which both rose strongly overnight. According to The Metal Bulletin, the iron ore price gained 2.8% to US$49.62 a tonne, ending two days of heavy losses, while global oil prices have also surged to US$36.62 a barrel.

Shares of Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) also gained 3.9% and 3%, respectively. Meanwhile, energy producers Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) rose 2.9% each, which highlights the love the sector is receiving from investors today.

Why are the commodity prices jumping?

Both commodities have been under enormous pressure in recent years and have acted as a huge drag on the miner’s earnings, so higher prices certainly bode well for BHP.

The gains came after China, which accounts for a significant portion of global iron ore and oil consumption, loosened its monetary policy again in order to drive the economy’s growth. It reduced the Reserve Requirement Ratio (RRR), which means banks can push more money into the banking system. In turn, that can spur demand for new funds and hence, contribute to economic growth.

As reported by The Australian Financial Review, ANZ economist Raymond Yeung said the RRR cut will immediately inject around AU$138 billion into the banking system, helping to alleviate the liquidity drain. Further cuts to the RRR are possible this year, particularly if investors continue to reduce their exposure to the Chinese currency.

While such a move from China could spur demand for oil, comments from Saudi Arabia also helped ease the market’s concerns about surging supply. According to CNBC, Saudi Arabia has pledged to work with other crude oil producers to limit market volatility, suggesting another potential agreement to freeze output could be in the works.

Is it time to buy shares of BHP Billiton?

Shares of BHP Billiton have been crushed in recent years, and even traded at their lowest price in more than a decade earlier this year.

While the overnight gains in both iron ore and oil are encouraging, investors need to be careful. After all, there is still a huge oversupply of both commodities in the market, and it is inevitable that growth in Chinese consumption will eventually slow.

At this point, I think it’s still too early to say the commodities rout is over and believe there could be more pain in store for the miners, as well as their shareholders. I’m holding off from buying BHP Billiton just yet and think there are far greater opportunities elsewhere in the market.

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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.

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