Santos Ltd and Origin Energy Ltd soar – Is the oil trade back on?

What: ASX investors in oil and gas producers are enjoying some solid gains on Monday with a number of stocks jumping in morning trade.

At midday, Santos Ltd (ASX: STO)Origin Energy Ltd (ASX: ORG) and Beach Energy Ltd (ASX: BPT) were all up around 7%.

Meanwhile, heavyweight Woodside Petroleum Limited (ASX: WPL) has gained 4% and Oil Search Limited (ASX: OSH) is up 2%.

So What: The gains in oil stocks come after a jump of around 4% in the oil price last Friday night which limited weekly losses to just 3%.

The relatively small weekly drop in the oil price compares with declines of close to 10% for Santos and Origin last week. This largely explains the “catch up” being played by investors on the ASX today.

Now What: Looking forward and picking the direction of the oil price does remains complicated. With oil at around US$50 a barrel the longer term trend is arguably still up however the time frame for this is murky.

With demand tepid and the supply of energy – particularly LNG to which many Australian producers are particularly exposed growing significantly – the near term fundamentals of the market suggest further volatility could lie ahead.

For very long term investors, the “oil trade” could still be profitable, however, there could be a better entry point. For most conservative investors, it is a sector probably best avoided.

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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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