Should you buy oil shares this week?

After an initial and unsurprising sell-off in the price of oil and oil-exposed shares in the wake of OPEC’s announcement that it had failed to reach an agreement to limit production early last week, oil stocks actually finished the week higher.

The Energy sector was the best performing sector, registering a gain of 6.6%.

Amongst the oil and gas majors, Santos Ltd gained 10.8% for the week, Woodside Petroleum Limited (ASX: WPL) ended up 6.5% and Oil Search Limited (ASX: OSH) climbed 6.9%.

With the market closed on Monday for Anzac Day, the ASX is today playing catching up on the recent moves in the oil price which saw the oil price fall on Monday in overseas trade.

Those falls have been reversed on Tuesday however with Brent crude oil up around 1%.

At Midday on Tuesday:

  • Santos has slipped around 2%
  • Oil Search was down nearly 1%
  • Woodside was bucking the trend to be approximately 0.3% higher
  • For comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) was up about 0.1%

What to expect

There are conflicting views as to what will happen next for oil.

According to a report on CNBC, the head of commodities research at RBC Capital Markets believes oil has bottomed as producers are “capped out”.

Meanwhile, other market watchers are concerned that supply still significantly outweighs demand.

For long-term investors there would appear to be a reasonable case for assuming that over the next full cycle the oil price will average a price higher than the current US$44 a barrel level.

It’s obviously a big unknown and for many investors it might be a bet not worth taking, however, for investors prepared to spend the time analysing oil shares under a range of scenarios there could be bargains to be discovered right now in the energy sector.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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