Why I’m not buying Santos Ltd, Origin Energy Limited or Beach Energy Ltd shares just yet

Shares in oil and gas producers Santos Ltd (ASX: STO), Origin Energy Limited (ASX: ORG) and Beach Energy Ltd (ASX: BPT) are holding up well on Friday considering the near 5% tumble in the oil price overnight.

In overnight trading, the price of US crude oil slumped 4.8% to US$45.14 a barrel after traders were disappointed in a report from the US Energy Information Administration that US oil stockpiles had fallen less than market watchers were expecting.

Despite Santos’ share price appearing to have found support at current levels around the $4.70 mark, I think it could be the wrong time for investors to buy.

Here’s why.

The uncertainty and corresponding volatility in energy markets isn’t likely to settle down anytime soon as a process of price discovery continues as supply and demand imbalances work their way through the market.

This uncertainty is being exacerbated by the failure of OPEC to set prices as it has historically done and also by the huge increase in global supply of LNG which is coming “on stream” from Australia and the USA.

Given the sharp rise in the oil price off its January lows and the subsequent rally in the share prices of oil and gas producers such as Santos, in my opinion there is a chance that there will be a leg down at some point in the not-too-distant future.

While current prices may not be a terrible entry point for long-term investors looking to gain exposure near cyclical lows, I believe there could be an even better time in the not-too-distant future for patient investors to buy energy stocks.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

One stock I would buy today

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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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