Why the BHP Billiton Limited share price has risen 5% today

Credit: Lucas Walters

The BHP Billiton Limited (ASX: BHP) share price has switched into a new gear today, rising 5% to $16.83.

Although the mining behemoth has had to contend with plenty of headwinds in recent years – and particularly over the last 18 months or so – it is currently riding on the tailwinds of an improvement in the iron ore and oil prices.

The commodities still remain well below their prices from previous years, but they have risen strongly in recent weeks. This week, the gains appear to have come about due to China’s decision to reduce the Reserve Requirement Ratio (RRR) to help stimulate its economy, while oil prices also appear to be rising based on renewed hopes that OPEC could be close to reaching an agreement to freeze output.

Iron ore and oil are BHP’s two most important commodities – and the ones that have inflicted the most damage on BHP’s earnings results in recent times – so it makes sense that their recent rally would create a spark among BHP Billiton investors.

Notably, shares of Rio Tinto Limited (ASX: RIO) have also risen 4.7%, while Woodside Petroleum Limited’s (ASX: WPL) share price is up 5% for the day as well.

It’s impossible to tell whether, or for how long, the strength in the commodities’ prices can be sustained and that is a risk investors need to consider before buying into the sector. Still, for now at least, investors have been given the chance to catch their breaths and enjoy the rebound.

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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. 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.

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