Here’s why Santos Ltd and the oil producers are climbing higher today

Credit: drpepperscott

So far it has been a great end to the week for shareholders of some of Australia’s leading oil producers. Their shares have been posting strong gains today and are vastly outperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) currently.

The reason why Beach Energy Ltd (ASX: BPT), Origin Energy Ltd (ASX: ORG), Santos Ltd (ASX: STO), and Senex Energy Ltd (ASX: SXY) have all climbed higher today is due to the rally in the oil price overnight.

The rally took oil prices higher by over 4% on Thursday and were the result of comments from Saudi Energy Minister Khalid al-Falih. According to CNBC Mr al-Falih revealed that the Organization of the Petroleum Exporting Countries (OPEC) and non-members would discuss the current market situation at an informal meeting late in September in Algeria.

One key topic that will be discussed at the meeting will be whether any action is required to stabilize oil prices. As Saudi Arabia is the world’s leading oil exporter and has thus far been resistant to working towards stabilizing prices, I can fully understand why oil bulls were excited by these comments.

Although this news is potentially very positive, I am fairly sceptical that an agreement will be made at the meeting. Previous attempts at coming to an agreement in April at the Doha meeting fell through when Saudi Arabia backed out, blaming Iran’s reluctance to cooperate with a production freeze.

So with an agreement uncertain, a global glut of oil, and growth in demand expected to decline in 2017, I would be hesitant to take a position in any of the oil producers at this point in time. Instead I feel there are better areas of the market that investors could focus on like the healthcare or information technology sector.

These three new breed blue chips are great examples of shares I would highly recommend adding to your portfolio instead of risking it in oil shares.

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Motley Fool contributor James Mickleboro 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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