A small slip in the oil price has sent ASX energy stocks in a tailspin as the sector is the worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index during morning trade.
The Beach Energy Ltd (ASX: BPT) share price dived 3.1% to $2.03 and is the third worst performer on the ASX 200, although its peers have also fallen down the same slippery hole.
The Santos Ltd (ASX: STO) share price crashed 2% to $6.75, Woodside Petroleum Limited (ASX: WPL) share price tumbled 1.9% to $34.20 and Oil Search Limited (ASX: OSH) share price fell 1.6% to $7.93.
Why oil is falling
The carnage was triggered by a small 0.1% dip in the Brent crude oil benchmark, which was earlier marching towards a five-month high of US$70 a barrel.
But the latest US crude inventory data brought that party to an end as the Energy Information Administration said inventories jumped by 7.24 million barrels last week – higher than what the market was expecting.
News that US oil production hit a record 12.2 million barrels a day last week is also prompting investors to lock in profits on ASX oil stocks.
Is it time to sell oil-stocks?
However, is the oil party really over? I don't believe so for a few reasons. The most obvious is that one data point doesn't make a trend and weekly inventories are volatile.
More importantly though, I would be expecting inventories to build ahead of the US summer driving season. This is typically when Americans take long road trips over the extended break and the build in inventory is likely to be in anticipation of that.
This summer could be a particularly busy one for Americans too as high employment, rising wages and a pick-up in economic growth could prompt many to spend on leisure.
Global demand for oil could also pick up as the latest manufacturing and production data in the US and China are coming back to life.
Supply issues to support the oil price
On the supply side, Russia and the oil-bloc nations under the Organization of the Petroleum Exporting Countries (OPEC) banner have been disciplined in cutting production to keep the price of crude from falling too far.
There's also speculation that the US will impose more sanctions against Iran, OPEC's fourth largest oil producer, while power outages has forced the shut down of a crude terminal in the troubled nation of Venezuela.
It's too soon to give up on ASX oil stocks although it's understandable that those who are overweight on the sector may want to take some profit off the table.
