Although the market has dropped notably lower in early trade, this hasn’t been the case for Australia’s leading energy producers. Following a sharp rise in oil prices overnight there are solid gains being seen across the sector this morning.
Here is the state of play in morning trade:
- The Beach Energy Ltd (ASX: BPT) share price is up 1.5% to $1.91.
- The Cooper Energy Ltd (ASX: COE) share price is up 0.5% to 43.2 cents.
- The Oil Search Limited (ASX: OSH) share price has climbed 1% to $8.78.
- The Santos Ltd (ASX: STO) share price has risen 1.7% to $6.87.
- The Senex Energy Ltd (ASX: SXY) share price is up 1.6% to 44.7 cents.
- The Woodside Petroleum Limited (ASX: WPL) share price has risen 1% to $36.50.
Why are oil prices on the rise?
According to Bloomberg, concerns over the imminent arrival of a major hurricane on the U.S. east coast led to the WTI crude oil price rising 3.5% to US$69.91 a barrel.
U.S. crude prices were also given a boost after an industry report showed the biggest drop in U.S. crude stockpiles since July.
In addition to this, Brent crude oil, which is generally regarded as being more sensitive to global supply disruptions, rose strongly after it was revealed that France and South Korea are shunning Iranian crude. The Brent crude oil price climbed 2.7% to US$79.44 a barrel overnight.
The rise in the Brent crude oil price means it is now trading at the largest premium to the WTI crude oil price in over three months.
Should you buy energy shares?
While I’m reasonably bullish on oil prices over the medium term, I think a lot of this has been priced into their shares already.
In light of this, I feel their shares are fully valued now and there is a danger that they could pullback if oil prices were impacted by a global trade war.
As a result, if I wanted exposure to the resources sector I would opt for a diversified miner such as BHP Billiton Limited (ASX: BHP) instead.
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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.