Oil price tipped to reach US$80: Should you buy energy shares?

Australia’s leading energy shares could get a major boost this year if predictions made by analysts at Citi prove to be accurate.

Overnight U.S. oil prices rose to US$63.57 per barrel, their highest level in 2018. But as far as Citi is concerned, prices could still climb significantly higher from here.

In fact, Citi has predicted that a series of macroeconomic events could push oil prices as high as US$80 per barrel. This is almost 26% higher than the current spot price.

According to a note out of the investment bank, war, Middle East tensions, and North Korea are all potential catalysts to moving oil prices higher.

As would the reinstatement of U.S. sanction on Iran. Citi estimates that the reinstatement of these sanctions could add US$5 to the price of each barrel.

This, combined with supply disruptions in Iraq, Libya, Nigeria and Venezuela, could ultimately lead to supply falling by more than 3 million barrels per day.

Which energy shares should you buy?

Although it has run hard in recent weeks, I still think that BHP Billiton Limited (ASX: BHP) is one of the best options in the resources sector. Especially given the positive outlook for iron ore as well.

Energy and iron ore make up a sizeable portion of its overall earnings. So if prices rise for both these commodities, BHP Billiton should be in a position to report strong earnings growth and an increase to its dividend.

Other options in the sector include Santos Ltd (ASX: STO), Oil Search Limited (ASX: OSH), and Woodside Petroleum Limited (ASX: WPL).

But it is worth remembering that these are just predictions from Citi and that there is no guarantee that oil prices will rise to US$80 per barrel. I’m not as bullish as Citi, but feel prices could rise beyond US$70 per barrel this year thanks to positive global economic growth.

But if you're not as bullish on oil prices as Citi is, then these quality growth shares could be great options for you.

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Motley Fool contributor James Mickleboro has no position in any of the 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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