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Why energy shares are sinking lower today

One of the major drags on the market on Tuesday has been the energy sector.

At lunch the S&P/ASX 200 Energy (Index: ^AXEJ) (ASX: XEJ) is down a sizeable 1.9% after Australia’s leading energy producers sank into the red.

Here is the state of play in the industry at noon:

The Beach Energy Ltd (ASX: BPT) share price is lower by 1% to $1.81.

The BHP Billiton Limited (ASX: BHP) share price has fallen 1.5% to $32.57.

The Karoon Gas Australia Limited (ASX: KAR) share price has dropped 2.5% to $1.06.

The Oil Search Limited (ASX: OSH) share price is down almost 2.5% to $8.84.

The Santos Ltd (ASX: STO) share price has fallen over 2% to $5.96.

The Woodside Petroleum Limited (ASX: WPL) share price is down 2.4% to $34.73.

Why are energy shares dropping lower?

Energy shares have fallen today after oil prices sank to a three-month low overnight.

According to Bloomberg, WTI crude oil fell 4.2% to US$68.00 a barrel and Brent crude oil dropped 4.5% to US$71.94 a barrel.

Oil prices took a hit amid concerns over increasing supply from Saudi Arabia and the United States.

Saudi Arabia is reportedly offering more crude cargoes to Asian customers and U.S. President Donald Trump is believed to be considering tapping the country’s emergency oil supply in an attempt to tame rising fuel prices.

These two nations can have a major impact on prices as they pump around one-fifth of the world’s crude.

This latest decline means that oil prices have fallen by more than 10% in just two weeks after reaching multi-year highs.

Should you buy the dip?

I would stay away from energy producers for the time being whilst the dust settles. While there has been talk of oil breaking through the US$80 a barrel level this year, it doesn’t look likely at this point.

And with many energy producers priced as though high prices are here to stay, their shares could potentially come under pressure if prices continue to slide.

Instead, I would look at this next major investment opportunity.

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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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