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Why energy shares are dragging the market lower today

Credit: drpepperscott

In morning trade the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has dropped lower due largely to declines in the energy sector.

Almost all Australia’s leading energy producers have sunk lower following heavy declines in oil prices at the end of last week. According to Bloomberg, WTI crude oil fell 4% to US$67.88 a barrel and Brent crude oil fell 3% to US$76.44 a barrel.

Oil prices fell after reports emerged stating that OPEC and Russia planned to increase their production by upwards of 1 million barrels per day to make up for any constraints on Iranian and Venezuelan production.

Prices had been on the rise over recent weeks on the back of supply concerns in a tightening market, but with OPEC and Russia willing to fill the gap, prices have started to give back their gains.

Here is the state of play in early trade in the energy sector:

  • The Beach Energy Ltd (ASX: BPT) share price is down 5% to $1.63.
  • The BHP Billiton Limited (ASX: BHP) share price has fallen 2.3% to $32.31.
  • The Cooper Energy Ltd (ASX: COE) share price has dropped almost 3% to 35 cents.
  • The FAR Ltd (ASX: FAR) share price is down 2% to 9.2 cents.
  • The Oil Search Limited (ASX: OSH) share price is lower by 2% to $8.02.
  • The Santos Ltd (ASX: STO) share price is off 2.5% to $5.74.
  • The Senex Energy Ltd (ASX: SXY) share price is down 4.5% to 42 cents.
  • The Woodside Petroleum Limited (ASX: WPL) share price has dropped 2.8% to $31.94.

While the declines in oil prices will be a disappointment for energy shares, it is a big positive for those that are negatively impacted by rising oil prices.

It will therefore come as little surprise to learn that Qantas Airways Limited (ASX: QAN) shares are on the rise today.

Should you buy the dip?

Whilst I think it would be prudent to wait for oil prices to settle first, I do see a lot of value in BHP Billiton’s shares regardless of recent movements in oil prices. This could make it worth considering picking up shares in the diversified mining giant on this weakness.

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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 Scott Phillips.

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