Why the energy companies’ share prices are rising today

After falls were experienced across the oil sector on Monday in the wake of OPEC’s failure to agree to production cuts, oil shares have rebounded on Tuesday.

The gains on the ASX come after US energy stocks bucked the trend overnight, with investors apparently unperturbed by the failure of OPEC to reach an agreement.

The sentiment has been echoed by local analysts with the Australian Financial Review (AFR) reporting the views of a number of market watchers that any oil sell-off is likely to be temporary with a floor appearing to have been established.

Amongst the top energy sector movers at lunchtime on Tuesday were:

Compelling upside potential

While most energy shares have bounced significantly off their recent lows, they remain a long way from their 52-week highs.

The oil market is notoriously cyclical and the fact that global markets appear to have taken the OPEC meeting in their stride is a sign of emerging confidence across the sector that the cyclical low has been reached.

As one analyst in the AFR’s article noted, the severe price decline in oil has been caused by a relatively small supply-demand imbalance. In theory at least, it would arguably only take a small decline in supply or small increase in demand to potentially create a sharp rise in the oil price from these levels.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. 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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