Oil price sinks taking energy shares with it

The oil price took a tumble overnight as US crude supplies rose 2.28 million barrels last week according to the US Energy Information Administration, and more falls could be coming in the weeks ahead.

Crude inventories rose 2.3 million barrels when analysts had guessed (forecast) a gain of only 1.3 million, according to Bloomberg. US imports rose to the highest level in almost four years as output slipped and officially entered a bull market on August 18, less than three weeks after sinking 20%.

West Texas Intermediate (WTI) benchmark oil dropped 3.6% to US$44.70 a barrel, while Brent crude oil fell 2.8% to US$47.04 a barrel.

The Organisation of Petroleum Exporting Countries (OPEC) plans to meet later this month to discuss ways to stabilise crude oil prices. Led by Saudi Arabia, the world’s biggest oil exporter, several OPEC members are producing record amounts of oil in a bid to maintain their market share, after increased oil supply from the US led to oil prices plunging from above US$100 a barrel to below half that value.

But like previous formal talks to discuss ways to freeze production levels, this one also appears doomed to failure.

And that’s simply because OPEC has lost its dominance of the oil market. Should OPEC countries agree to freeze production and trigger a rise in oil prices, US shale drillers are likely to re-enter the market, taking market share.

And that spells bad news for Australia’s oil and gas producers including BHP Billiton Limited (ASX: BHP), Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG). Shares in the big four oil co’s were down 2.8%, 0.8%, 1.5% and 2.3% respectively in early trading.

Given the current global oversupply of oil, it’s hard to see oil prices recovering to anywhere near US$100 a barrel anytime soon.

And as we noted earlier this week, Santos in particular, could be forced to write down the value of its assets yet again – given the high prices the company has used to estimate the value of its assets over the next few years.

Foolish takeaway

Buyer beware. Oil prices are highly volatile currently, and that likely means a rollercoaster ride for the share prices of oil companies.

3 More Rotten Shares to Avoid, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.